Reference no: EM131340441
Oltre il Giardino SpA, a medium-sized listed company, is considering two schemes to finance its next expansion.
1. The first is to raise EUR 8 million by means of a long-term loan from its bankers. Interest would be charged at 2 per cent above base rate which you should assume currently stands at 5 per cent. The loan would be repayable in equal annual instalments over five years starting on 1 April 2007 and finishing on 1 April 2011. The bank requires an agreement to the following covenants. Firstly, an interest cover of at least two times must be maintained and, secondly, the debt-to-equity ratio is not to exceed 1.
2. The other scheme is to raise EUR 8 million by issuing 2 million ordinary shares at EUR 4 each.
The following extracts have been taken from the company's records:
|
Years ended 30 September
|
2005
|
2004
|
2003
|
|
No. of EUR 1 ordinary shares(millions)
|
10
|
10
|
10
|
| |
| Amounts in millions of euro |
|
|
|
|
Stockholder's equity
|
36
|
34
|
32
|
|
Loans
|
26
|
20
|
18
|
|
|
62
|
54
|
50
|
| |
|
EBIT
|
9.3
|
5.2
|
8
|
|
Interest expense
|
3
|
2.8
|
2.4
|
EBIT for the year ending 30 September 2006 is forecast at EUR 10 million and the dividends are forecast at EUR 0.20 per share. Use a corporate tax rate of 35 per cent in your calculations.
(a) Calculate the following ratios for 2006 for each of the debt-and-equity alternative: (i) interest cover (ii) debt-to-equity ratio.
(b) Using the information just mentioned, and any other ratios you consider relevant, state with reasons which scheme you would recommend.
|
Purchase by signing a written contract
: Does it make a difference if the minor makes a purchase by signing a written contract?
|
|
Complete a global competitive landscape
: Analyze the supply chain from both product and service standpoints - Analyze the most important value points in terms of process, products, and services.
|
|
Write a review of one of these books or films
: Write a review of one of these books or films. In your review, take into consideration historical accuracy and detail. Is it a book/film that primarily educates or entertains? What do you think the intent was? How does the book/film enhance your u..
|
|
Calculate the weekly cost
: A small business operates three pieces of equipment for nine hours continuously per day for six days a week. If the three equipments consume 10 kW, 2.5 kW and 600 W respectively, calculate the weekly cost if the charge per unit is 7.9 pence.
|
|
Calculate the interest cover ratio and debt to equity ratio
: Oltre il Giardino SpA, a medium-sized listed company, is considering two schemes to finance its next expansion.- Calculate the interest cover ratio and debt-to-equity ratio for 2006 for each of the debt-and-equity alternative.
|
|
Problem regarding the field of logistics
: What two concepts do you think are the most relevant to the field of logistics and why? Which one or two concepts do you think are the least relevant to the field of logistics and why?
|
|
How to make kuwait a tourist country
: How to make Kuwait a tourist country - why do kuwait need to take this step
|
|
Strategic and operational planning
: Integrate all aspects of BSC into a consistent tool contributing to the chosen organization's (Pepsi) strategic and operational planning.
|
|
Determine the hurdle rate for the entire company
: At her previous job, Wendy had successfully persuaded the top management to implement a system that recognizes the differential risks for different divisions and evaluate projects based on risk-adjusted hurdle rates. Determine the hurdle rate for the..
|