Try co. is small, profitable, owner-managed company which is seeking finance for a planned expansion. A local bank has indicated that it may offer a loan of sh.100, 000 at a fixed annual rate of 9%.TFR co. would repay sh.25, 000 of the capital each year for the next four years. Annual interest would be calculated on the opening balance at the start of each year. Current financial information on TFR CO. Is as follows:
Current sales sh 210000
Net profit margin 20%
Annual taxation rate 25%
Average overdraft sh 20000
Average interest on overdraft 10% per year
Dividend payout ratio 50%
Shareholders’ funds sh200000
Market value of non- current assets sh 180000
As a result of the expansion, turnover would increase by sh 450000 per year for each of the next 4 years, while the net profit margin would remain unchanged.
TFR co. currently has no other debt than the existing and continuing overdraft and has no cash or near cash investments he noncurrent assets consists largely of the building from which the co. conducts its business. The current dividend payout ratio has been maintained for several years.
Required:
a) Assuming that TFR is granted the loan, calculate the ratios for TFR co. for each of the next 4 years.
Interest cover
Medium to long term debt/equity ratio
Return on equity
Return on capital (10 marks)
b) Discuss two other financing options available for TFR for the planned expansion. (5 marks)
c) discuss the difficulties commonly faced by small firms such as TFR co. when seeking additional finance.(5 marks)
For a custom-written paper on the above topic, place your order now!
What We Offer
• On-time delivery guarantee
• PhD-level professionals
• Automatic plagiarism check
• 100% money-back guarantee
• 100% Privacy and Confidentiality
• High Quality custom-written papers
