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INSTITUTE OF TECHNOLOGY CARLOW : CORPORATE FINANCE ASSIGNMENT

Harding Ltd manufactures, installs and maintains Eco Friendly Heating Systems for hotels. Their most recent financial statements are set out below:

Statement of Financial Position as at 31 December 2019 
 
ASSETS€000 
Non-Current Assets 
Plant and Equipment832.80 
Motor Vehicles279.90 
1112.70 
Current Assets 
Inventories439.80 
Trade Receivables765.45 
Cash at Bank27.60 
1232.85 
Total Assets2345.55 
 
EQUITY AND LIABILITIES 
Equity 
€1.50 Ordinary Shares600.00 
General Reserve78.30 
Retained Earnings570.30 
1248.60 
Non – Current Liabilities 
12% Loan Notes375.00 
 
Current Liabilities 
Trade Payables625.95 
Tax96.00 
721.95 
Total Equity and Liabilities2345.55 
 
Income Statement for the year ended 31 December 2019 
 
€000 
Revenue7811.70 
Operating Profit813.00 
Interest45.00 
Profit Before Tax768.00 
Tax at 25%192.00 
Profit After Tax576.00 

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Continued

A dividend of €230,400 was proposed and paid during the year. The business wishes to invest in more plant and equipment in order to cope with an expected increase in demand. Additional operating profit (profit before interest and tax) of €180,000 per year is expected if an investment of €600,000 is made in plant and equipment.

The directors are considering an offer from a private equity firm to finance the proposed expansion. The finance will be made available immediately through either :

  1. An issue of €1.50 ordinary shares at a premium on nominal value of €2.50 per share, or
  2. An issue of €600,000 10% loan notes at nominal value.

The directors wish to maintain the same dividend payout ratio in future years as in past years, whichever method of finance is chosen.

The company uses simple pay back to evaluate capital investment projects such as the one proposed. Included in the projected increase in operating profit of €180,000 is depreciation per year of €30,000. The company considers capital investment projects with a payback period of less than 3 years to be worthwhile.

Report Requirements

  1. For each of the financing schemes:
  1. Prepare a projected income statement for the year ended 31 Dec 2020.  
  2. Calculate the projected earnings per share for the year ended 31 Dec 2020.
  3. Calculate the projected level of gearing as at 31 December 2020.

                                                                                                             (6 Marks)

  • Assess both the financing schemes under consideration from the viewpoint of the existing shareholders.                                                                                     (12 Marks)
  • Calculate the level of operating profit (profit before interest and taxation) at which the earnings per share under each of the financing schemes will be the same.      (4 Marks)
  • Calculate the payback period for the project proposed.                                   (3 Marks)
  • Advise the company on the weaknesses of simple payback and why they should consider using the net present value as a more robust method to evaluate capital investment projects.                                                                                              (5 Marks)

                                                                                                TOTAL: 30 MARKS

Please read and follow the instructions below carefully:

Report:               Prepare a report for the board of Harding Limited. The reportshouldaddress allof the requirements raised.

Word-count:  The report should be 1,200 words ±10%

Material:                    Peer reviewed materials, e.g. textbooks and research articles. Recent references preferred. An appropriate range of other reliable sources of robust editorial quality may be included.

Marks:                        30% of the final course mark

Submission:                Soft copy submitted via Turnitin and Blackboard

Deadline:                    22nd April 2020 at 23:59

Format:                      Report to be written in report format

Fully referenced in Harvard style

12 Point Times New Roman

1.5 line spacing

Justified margin

Numbered pages

Cover Page

Cover Page:               Name

                                    Student Number

                                    Course & Module Name

                                    Essay title

Declaration of originality (separate)

Marking Criteria:     As per Report Requirements

NOTE

(Please ensure that points made are logically and coherently argued, and that your ideas show evidence of research.)

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