CIMA Exam CIMAPRA19-F03-1 Topic 7 Question 24 Discussion

An all equity financed company reported earnings for the year ending 31 December 20X1 of $5 million.

One of its financial objectives is to increase earnings by 5% eachyear.

In the year ending 31 December 20X2 itfinanced a project byissuing a bondwith a $1 million nominal value and a coupon rate of 7%.

Thecompany payscorporate income taxat30%.

If the company is to achieve its earnings target for the year ending 31 December 20X2, what is the minimum operating profit (profit before interest and tax) that it must achieve?