Section A

Oasis Hospitality operates a chain of virtual reality entertainment centers. During the year, the company revalued its properties upwards by $2 million and issued $3 million in new equity shares to pay down long-term debt.

What is the most likely impact of these two transactions on the company's Return on Capital Employed (ROCE) and Gearing ratio?

ROCE = Profit Before Interest and Tax / Capital Employed. Both the revaluation and the share issue increase Capital Employed (Equity + Debt). Assuming profit remains unchanged, a larger denominator means ROCE will decrease. Gearing = Debt / Equity (or Debt / Capital Employed). Debt is decreasing and Equity is increasing significantly (revaluation + share issue). Therefore, the gearing ratio will decrease.