Written report

\You are the CFO of Axis Trading Group (ATG). Together with the Financial Controller, you are responsible for evaluating the financial performance and devising a strategy for financial sustainability for ATG. The key objective of the report is to devise an implementation plan for the continual growth of the company to enable financial stability and sustainability. The written report, along with a five-minute presentation, will be submitted at the next management meeting. Your report needs to be professionally presented. This requires that it be word-processed with calculations detailed.

Additional information

As part of its financial stability and sustainability, ATG is considering the acquisition of another subsidiary company, ALH Company (ALH). To fund the acquisition the company requires $3,000,000. You have proposed two alternatives to fund the acquisition:

Issue 1,500,000 $2 ordinary shares

Issue 30,000 $100 13% debentures

Assume the following existing capital structure of:

2,000,000 $2 ordinary shares $4,000,000

750,000 $1.50 8% Preference shares $1,125,000

40,000 $100 11% Debentures $4,000,000

It is predicted that the acquisition will increase the companys Earnings Before Interest and Tax (EBIT) to $1,800,000. The company tax rate is 30%.

Before you start compiling your report, ensure that you undertake the following calculations:

calculate the Earnings per share for each option.

calculate the EBIT at the indifference point.

calculate the Degree of financial leverage

calculate the Goodwill (if any) assuming that the Net Assets of ALH are $2,125,000.

Completing your Report:

Part 1

Provide answers to the following questions:

I). What is the EPS under each option?

II). What is the EBIT at the indifference point?

III). Provide an explanation of the indifference point.

IV). What is the degree of Financial Leverage?

V). What is your recommendation as to the most appropriate option based on EPS?

VI). What is the Goodwill on acquisition?

VII.) Discussion of other factors to be considered.

VIII). The information on which your calculations are made have been audited and comply with financial legislation. Does this have any impact on the results of your evaluation?

IX). Include your calculations as Appendix 1 in the report.