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Hi sir,
I have one doubt in this question when I am trying to find EPS and interest coverage ratio And debt / equity ratio (using book value) . I am not able to get the correct answer for revised figure. Can you please give me solution for that part. I see past exam answers but I am not able to get it. Thank you in advance.
The profit before interest and tax is 12. With proposals A and C the interest remains at 3, and so the interest cover is 4.
With proposal B there is extra interest to pay of 1.5, so the total interest is 4.5 and the interest cover is 12/4.5 = 2.7.
The debt equity ratio is currently 30/20 = 150%
For proposal B the debt increases by 15, and so the debt equity ratio changes to 45/20 = 225%
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