Explain why a company might be worried about its income gearing.
Calculate the highest amount of bank loan the company could take while still following the income gearing policy in 2022.
Calculate the balance on the retained earnings account on 31 December 2022 if all the $100 000 needed is financed by the 10% bank loan. The dividend cover ratio should stay at the 2021 level.
Calculate, to two decimal places, assuming that the full bank loan of $100 000 was taken, the gearing ratio on 31 December 2021.
Calculate, to two decimal places, assuming that the full bank loan of $100 000 was taken, the gearing ratio on 31 December 2022.
Advise the directors whether the company ought to finance all of the expansion with the bank loan. Support your answer.