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Hi Sir,
for the part a?v?when calculate the debt/equity ratio for equity finance, I do not really understand why the equity part should take ?5488+2500?+2000 but not 5488+2500+2000+249?1249-1000??
Why it ignore the gain the profit?
The examiner has calculate the effect on the gearing immediately after the new finance is raised (i.e. before next years profit has been earned).
We cannot really calculate what the ratio will be at the end of next year because we don’t know what dividend will be paid next year and therefore how much of the profit will be retained next year (and increase retained earnings).
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