ARWIN

Arwin plans to raise $5m in order to expand its existing chain of retail outlets. It can raise
the finance by issuing 10% loan stock redeemable in ten years’ time, or by a rights issue at
$4.00 per share. The current financial statements of Arwin are as follows:
Statement of profit or loss for the last year
$000
Sales revenue 50,000
Cost of sales 30,000
––––––––
Gross profit 20,000
Administration costs 14,000
––––––––
Profit before interest and tax 6,000
Interest 300
––––––––
Profit before tax 5,700
Taxation at 30% 1,710
––––––––
Profit after tax 3,990
––––––––
Changes in equity
$000
Dividends 2,394
Net change in equity (retained profits) 1,596
Statement of financial position
$000
Net non?current assets 20,100
Net current assets 4,960
––––––
25,060
––––––
Ordinary shares, nominal value 25¢ 2,500
Retained profit 20,060
12% loan stock (redeemable in six years) 2,500
––––––
25,060
––––––
The business expansion is expected to increase sales volumes by 12% in the first year, with
no change in sales price. Variable cost of sales makes up 85% of cost of sales.
Administration costs will increase by 5% due to new staff appointments. Arwin has a policy
of paying out 60% of profit after tax as dividends and has no overdraft

Sir,
Here , the question specifies variable costs = 85% of cost of sales which is $25500. But the variable cost given in the kit is $28560. Is it printing error ? How did we get $28560.