The tax rate is $27\%,$ and tax is payable in the year the liability arises.

Green $($Pty$)$ Ltd has a weighted average cost of capital $($WACC$)$ of $11\%,$ the directors are of the opinion that an increase in debt will not influence the WACC.

Required:

$2\mathrm{.}1$ Evaluate the gearing ratio and determine if thin capitalisation rules will apply to Purple $($Pty$)$ Ltd$.$ Calculate the amount of interest payable that will be allowed for tax relief relating to Purple $($Pty$)$ Ltd$\text{'}$s loan from Orange $($Pty$)$ Ltd$.$

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$(4$ marks$)$

$2\mathrm{.}2$ Calculate the amount of interest payable on the loan from Orange $($Pty$)$ Ltd to Green $($Pty$)$ Ltd and calculate and comment on the adjustments to profit needed for tax