Question two, part (a) revolved around the impact of changes in financing of a company and how the impact of changing financial structure affected the financial position, earnings per share and the gearing of the company.

The answers to this part tended to be varied. Candidates, who presented the changed financial position and calculated the changes in earnings for each proposal, which were then incorporated into the calculations of EPS and gearing, gained the majority of marks. However, overall this part of the question was not done well.

Many responses tended to discuss or try to explain the changes and therefore gained fewer marks. Many responses did not consider the impact on interest of increased or reduced debt financing, and therefore did not incorporate the impact into the profit after tax and the financial position. In a notable minority of responses, candidates did not calculate the EPS and gearing correctly. Such responses gained few marks.