The directors of Atono plc were informed at a golf outing by fellow directors that it is more valuable to have debt in a company's capital structure than equity, as debt is cheaper than equity. Atono plc currently has no debt in its capital structure, though is considering borrowing funds, which it will use to buy back the more expensive equity capital. The capital structure of Atono plc is as follows:

Additional information:
1. The company's equity shares are currently trading at £20 each, and it is assumed that this value does not change when the suggested capital structure change takes place.
2. The long-term debt attracts an interest rate of 8 per cent.
3. Taxation is 30 per cent.
Required
Calculate the gearing ratio for Atono plc under both scenarios.

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Current Suggested £ 000 S000 10,000 10,000 10,000 5,000 Assets Equity and reserves Long-term debt Total equity and liabilitics -5,000 10,000 10,000 Shares outstanding 500,000 250,000