taking a bit of time

Question 3: Part 1: Arnold Ltd is an international company with its head office located in the UK. Its shares and bonds are listed on the London stock exchange. Extract from the most recent financial position as at 31 December 2019 are as follows: 000 3 million ordinary shares of 1 3,000 Reserves 7,000 6% bond 2,000 Historic records of dividends paid in the last five financial periods are as follow: Year ended 2015 2016 2017 2018 2019 31 December 000 000 000 000 000 Less 510 540 580 610 dividends 630 The market value of Amold 's ordinary share is 3.5 per share ex div. The bonds are redeemable in 10 years with a par value of 100 and a market value of 105. The current corporation tax rate is 30% Required: Calculate the followings for Amold Ltd when appraising new investment opportunities a. the cost of debt (10 marks) b. the cost of equity (10 marks) c. the cost of capital (WACC) (10 marks) Part 2: Continuousness to part 1, Arold Ltd reported the following profit for the year ending 31 December 2019: 000 Profit before interest and tax 21,520 Interest (120) Profit before tax 0.2221,400 Tax at 30% (6,420) Earnings 14,980 Dividends (630) Retained earnings 14, 350 The company wants to raise an additional 1 million for a new production plant which will be raised by an issue of 8% bonds. Through this investment Arnold will add an extra 2 million per year to its profits before interest and tax. Dividends will be paid at 22p per share. Assume that taxation will remain at 30% and that interest cost will remain constant plus the additional interest cost of the new investment. Required a. Produce a profit forecast for next year adjusting for the new investment (7 marks) b. Demonstrate the effects of the new investment on i. Interest cover (5 marks) ii. Financial gearing (5 marks) iii. EPS (5 marks) c. Comment briefly on your findings (8 marks)