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part b-how is the interest of 1.40,1.27 and1.08 calculated? an the borrowing of 18.17,15.37 and 11.68?also how do they get equity value of 35.93,38.73 and 42.42/?very confused student
thanks1.40 is Interest on loan $10.5m + OD $9.5m = $20m x 7%
1.27 is $20m less repayment from profits year 1 of $1.83m = $18.17m x 7%
1.08 is $18.17 less repayment from profits year 2 of $2.80m = $15.37m x 7%
The $11.68 is $15.37 less year 3 profits $3.69m (profits after div deducted)
Shr hoder eqty per bal sheet is $34.10 add retained earnings for each year and you will get the equity values you quoted. eg 34.10+1.83=35.93
That’s how I arrived at the answers in the book.
Hope this helps.
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