SECTION C: CASE STUDY COMMUNICATIONS (FIJI) LIMITED and Subsidiary company CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 Radio income Other revenue Salaries and employee benefits Depreciation and amortization Other expenses 2018 $ 12,286,547 1,542,626 (3,903,581) (1,880,971) (4,804,491) 2017 $ 11,609,894 1,397,361 (3,647,622) (1,098,119) (5,494,056) 3,240,130 Profit from operations Finance costs Share of profit of associate or joint Gain on sale of shares in associate company (221 !040) 464,454 2,767,458 (143,660) 128,014 659,371 Profit before income tax Income tax (expense) 3,483,544 (539,755) 3,411,183 (488,249) Net profit for the year 2,943,789 2,922,934 COMMUNICATIONS (FIJI) LIMITED and Subsidiary company CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2018 2018 $ 2017 $ Current assets Cash and cash equivalents Trade receivables Inventories Prepayments and other assets Income tax receivable 1,069,433 2,032,119 359,797 14,629 3,475,978 2,055,770 2,200,227 7,805 382,553 68,668 4,715,023 Non-current assets Investment in associates and joint ventures Intangible assets Property, plant and equipment Right-of-use .assets Deferred tax assets 2,404,097 1,385,009 6,640,334 1,792,782 35,463 12,257,685 2,039,643 1,418,142 5,961,133 95,916 9,514,834 Total assets 15,733,663 14,229,857 Current liabilities Trade and other payables Employee benefit liabilities Interest-bearing borrowings 941,585 104,633 674,036 1.720,254 2,114,849 148,658 607,453 2.870,960 Non-current liabilities Interest-bearing borrowings Employee benefit liabilities Deferred tax liability 1,132,378 139,049 84,182 1,355,609 253,732 114,663 137,704 506,099 Total liabilities 3,075,863 3,377,059 Net assets 12,657,800 10,852,798 Shareholders' equity Share capital Reserves Retained earnings 3,619,500 (587,201) 9,625,501 3,619,500 (515,814) 7,749,112 Total equity 12,657,800 10,852,798 Additional Information: 2018 $ 2017 $ 426,960 284,640 DIVIDENDS PAID AND PROPOSED Declared and paid in year: Final dividend for 2016 Interim dividend for 2017 Final dividend for 2017 1st Interim dividend for 2018 2nd Interim dividend for 2018 Dividends declared and paid Declared but not paid: Special dividend for 2017: Total dividend declared 426,960 284.640 355,800 1,067,400 711,600 1,067,400 1,174,140 1.885,740 SHARE CAPITAL As at the end of the financial year, the number of fully paid ordinary shares was 3,558,000. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding-up of the Company in proportion to the number of shares held. Every ordinary shareholder present at a meeting of the Company, in person or by proxy, is entitled to one vote, and upon a poll each ordinary share is entitled to one vote. Ordinary shares have no par value. Required: (a) Using the 2018 financial statements for Communications Fiji Limited (CPL), calculate Earnings per Share, Dividends per share, Return on Equity, Net Tangible Asset Backing per share, Debt to Equity and Times Interest Earned Ratios. [7 Marks] (6) Assume that the company is planning to issue 500 000 ordinary shares to raise $2,500,000. Recalculate Earnings per Share, Dividends per share, Return on Equity, Net Tangible Asset Backing per share, Debt to Equity and Times Interest Earned Ratios. Compare your answers to part a above and use it to justify whether lenders will consider CPL as a risky investment [13 Marks] (c) Assume (INDEPENDENT of (b) above) that the company is planning to issue debentures to raise $2,500,000 interest is 9% p.a.). Recalculate Earnings per Share, Dividends per share, Return on Equity, Net Tangible Asset Backing per share, Debt to Equity and Times Interest Earned Ratios. [7 Marks] (d) What option do you recommend (1.e. debt or equity)? [3 marks]