Gearing

Please help.

G most recent SOFP shows that they have a long term borrowings of 12.4 million, share capital of 6.8m and accumulated reserves 5.2m

G is considered to raise 4M of new long term debt finance to fund an acquisition of F. F is said to have a value to G of 4.5 M. The current market share for G is 2.90 per share.

What will be the gearing impact for G after the acquisition. Assuming we are using (Debt/debt+equity)

Now question looks simple..

Debt= 12.4+4=16.4 ( Debt after the acquisition)
Equity+ 6.8+5.2= 12M (Equity after acquisition I have not included the fact that G has now bought F ?)

What about the fact that we have bought F? Do we add this to equity? The solution adds 0,5M to equity…Not sure how the 0.5M was calculated. Isit simply the 4m raised via debt minus the 4.5m valuation of F?

Thanks.