Reference no: EM133205736

Dolma plc is a listed company in the Alternative Investment Market (AIM) that plans to invest £10m on expanding its existing business. The finance department has researched the capital markets and advised that the money could be raised by issuing 8% loan notes, redeemable in 8 years' time. Current financial information on Dolma plc is as follows:

Statement of profit or loss for the previous year:£'000
Profit before interest and tax 7,000
Interest (500)
Profit before tax 6,500
Taxation (1,950)
Profit for the period 4,550
Statement of financial position for the previous year:
£'000 £'000
Non Current assets 20,000
Current assets 20,000
Total Assets 40,000
Equity and liabilities
Ordinary shares of £1 each 5,000
Retained earnings 22,500
Total equity 27,500
9% £1 preference shares 2,500
10% loan notes 5,000
Total non-current liabilities 7,500
Current liabilities 5,000
Total equity and liabilities 40,000

The current ex-div ordinary share price is £4.40 per share. An ordinary dividend of 36p per share has just been paid and dividends are expected to increase by 4% per year for the foreseeable future. The current ex-div preference share price is 77p. The loan notes are secured on the existing non-current assets of the company and are redeemable at par in 6 years time. They have a current ex-interest market price of £105. Badger plc pays tax at 30%.