a) Prepare a projected income statement for the year to 31 October Year 8. b) Calculate for Year 7 and Year 8 i) Earnings per Share ii) Degree of operating gearing iii) Degree of financial gearing iv) Degree of combined gearing c) Briefly evaluate the information produced in a & b
a) Prepare a projected income statement for the year to 31 October Year 8. b) Calculate for Year 7 and Year 8 i) Earnings per Share ii) Degree of operating gearing iii) Degree of financial gearing iv) Degree of combined gearing c) Briefly evaluate the information produced in a & b
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
a) Prepare a |
to 31 October Year 8. |
b) Calculate for Year 7 and Year 8 |
i) Earnings per Share |
ii) Degree of operating gearing |
iii) Degree of financial gearing |
iv) Degree of combined gearing |
c) Briefly evaluate the information produced in a & b |
d) Calculate the sales revenue required in Year 8 to |
maintain existing earnings per share |

Transcribed Image Text:The statement of financial position of the business revealed that 2 million £1
ordinary shares are in issue as well as 10 per cent loan notes with a nominal
value of £1.3 million. There are no reserves as all profits have been distributed
as dividends.
It is believed that output can be increased by 20 per cent if the existing
bottling line was replaced. The cost of the new line would be £2 million, which
could be financed by the issue of 10 per cent loan notes at £80 per £100
nominal value. The new bottling line would reduce variable costs by £0.15 per
bottle but would increase fixed costs by £150,000 per year. Installation of the
new line can occur immediately after a decision is made.

Transcribed Image Text:Fowler Ltd
Produces 'Vitex' sells for 1.20 per bottle
Income Statement for the year ending
31 October Year 7
£ 1,800,000.00
|-£ 750,000.00
|-£ 420,000.00
£ 630,000.00
|-£ 130,000.00
£ 500,000.00
-£ 150,000.00
£ 350,000.00
Sales Revenue
Variable Expenses
Fixed Expenses
Opearting Profit
Interest Payable
Profit before taxation
Тах 30%
Profit for the year
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