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A company has borrowings of S5 million on which it pays interest at 8%. It has an operating profit margin of 20%.

The company plans to increase borrowings by S2 million Interest on additional borrowings would be 10% and the operating profit margin would remain unchanged

A debt covenant attached to the new borrowings requires interest cover to be at least 4 times throughout the period of the borrowing

Interest cover is defined in the loan documentation as being based on operating profit

What is the minimum sales value required each year to avoid a breach of the interest cover covenant'

A major energy company, GDE, generates and distributes electricity in country A. The government of country A is concerned about rising inflation and has imposed price controls on GDE, limiting the price it can charge per unit of electricity sold to both domestic and commercial customers. It is likely that price controls will continue for the foreseeable future.

The introduction of price controls is likely to reduce the profit for the current year from $3 billion to $1 billion.

The company has:

   • Distributable reserves of $2 billion. 

   • Surplus cash at the start of the year of $1 billion. 

   • Plans to pay a total dividend of $1.5 billion in respect of the current year, representing a small annual increase as in previous years. However, no dividends have yet been announced. 

Which THREE of the following responses would be MOST appropriate for GDE following the imposition of price controls?

A company is preparing an integrated report according to the International Framework as issued by the International Integrated Reporting Council.

Which THREE of the following should be included in the report?

An all equity financed company reported earnings for the year ending 31 December 20X1 of $8 million.

One of its financial objectives is to increase earnings by 5% each year.

In the year ending 31 December 20X2 it financed a project by issuing a bond with a $1 million nominal value and a coupon rate of 4%.

The company pays corporate income tax at 20%.

If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?

The financial assistant of a geared company has prepared the following calculation of the company's equity value:

Useful information;

• Tax rate - 20%

• Cost of equity = 12%

• Weighted average cost of capital (WACC)« 10%

" Debt finance of the company comprises a $6 million 7% undated bond trading at par Valuation workings.

Which of the following errors has been made by the financial assistant?