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You are required to calculate the following: (i) Cash purchases: the total value of credit received from Trade Creditors is 2.5 months - Leaving Cert Accounting - Question 5 - 2012
Question 5
You are required to calculate the following: (i) Cash purchases: the total value of credit received from Trade Creditors is 2.5 months. (ii) Interest Cover. (iii)... show full transcript
Worked Solution & Example Answer:You are required to calculate the following: (i) Cash purchases: the total value of credit received from Trade Creditors is 2.5 months - Leaving Cert Accounting - Question 5 - 2012
Step 1
(i) Cash purchases:
Answer
To calculate cash purchases, we need to determine the total purchases and subtract the credit purchases. Given:
- Total Purchases = €600,000
- Credit Purchases = €470,400
Thus, cash purchases can be calculated as follows:
[ \text{Cash Purchases} = \text{Total Purchases} - \text{Credit Purchases} = 600,000 - 470,400 = 129,600 ]
Step 2
(ii) Interest Cover:
Answer
Interest Cover is calculated as the profit before interest divided by interest expenses. Given:
- Profit before Interest = €63,000
- Interest = €20,000
Thus, the Interest Cover is:
[ \text{Interest Cover} = \frac{\text{Profit before Interest}}{\text{Interest}} = \frac{63,000}{20,000} = 3.15\text{ times} ]
Step 3
(iii) Dividend Cover:
Answer
Dividend Cover is determined by the earnings available for dividends divided by the ordinary dividends paid. Given:
- Profit after Interest and Preference Dividends = €43,000 - €15,000 = €28,000
- Ordinary Dividends = €10,000
The Dividend Cover can be calculated as follows:
[ \text{Dividend Cover} = \frac{\text{Profit after Interest and Pref. Dividends}}{\text{Ordinary Dividend}} = \frac{28,000}{10,000} = 2.8\text{ times} ]
Step 4
(iv) Period to recoup price:
Answer
To calculate the period to recoup price per share, we use the market price and dividend per share. Given:
- Market Price = €1.15
- Dividend per Share = €0.3333
The Period to recoup price can be calculated as:
[ \text{Period to recoup price} = \frac{\text{Market Price}}{\text{Dividend per Share}} = \frac{1.15}{0.3333} \approx 3.45\text{ years} ]
Step 5
(v) The projected market value per ordinary share in 2012:
Answer
The projected market value per ordinary share can be derived using the earnings per share and price-earnings ratio. Given:
- Earnings per Ordinary Share = €7.00
- Price Earnings Ratio = 16
Thus, the projected market value is:
[ \text{Projected Market Value} = \text{Earnings per Share} \times \text{Price Earnings Ratio} = 7.00 \times 16 = €1.12 ]