Read the scenario below and answer the questions that follow.A company is under pressure from influential shareholders to change its dividendpolicy. The company has always followed the residual dividend policy, but theinfluential shareholders feel that the company needs to change to a stable pay-outratio policy. The company just reported earnings of R232m for the year ended31 March 2024. The company is considering the following investment opportunitiesfor the upcoming financial year:InvestmentopportunityABUDCECostR72mR62mR110mR96mR48mInternal rate of return14.28%13.03%15.67%16.01%13.79%The company's cost of capital is 13.5% and its target capital structure is representedby a debt-to-assets ratio of 40%. The company has 28m ordinary shares outstanding.

The objective of the question is to determine the amount of dividends the company can distribute to…

Answered: Read the scenario below and answer the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are considering a new supplier that you estimate would reduce your costs 0.025, increasing overall EBIT margin the same amount, or 250 basis points. Tax burden 0.79 Interest burden 0.8 Operating margin Asset turnover 2.1 Leverage ratio 1.2 Equity 56 Before the changes are made the firm was intrinsically valued at 45.54 After the changes, what would the new value be assuming the new ROE, growth, and EPS1. The firm pays dividends as 0.61 of EPS. The discount rate is 0.15" O 64.88 O 70.24 62.35 O 67.36 0.08 O 73.13
ClapTrap is a rapidly growing image messaging company. The company's growth strategy requires rapid reinvestment currently, with dividend payouts increasing as growth opportunities gradually disappear. You have the following financial information about ClapTrap: Earnings in the most recently concluded fiscal year were $$6.286.28. The company will retain all its earnings this year (from t=00 to t=11 ), reinvesting in new projects with a return on new investment of 44.044.0%. The next year (from t=11 to t=22 ), the company will retain 85.085.0% of its earnings. Return on new investment is expected to be 30.030.0%. In the following year (from t=22 to t=33 ), the company will retain 69.069.0% of its earnings with an expected return on new investment of 20.020.0%. The company will then enter a period of stable growth, retaining 49.049.0% of its earnings in perpetuity. a) What are the expected dividends per share for each period from t=11 to t=33 ? The expected dividends per share for…
You forecast the company RIO will have a sustainable ROE of 15% in the future, similar to the industry average of 15%. The company has a dividend payout ratio of 50% versus industry average of 50%. The company had less debt and operation leverage compare to industry, as a result , RIO has a beta of 1.8 versus the industry average of 2. Based on these information, should the company RIO have a higher or lower PE ratio than the industry average ? Given a risk free rate of 2% and market risk premium of 8%, what is RIO’s “intrinsic” forward PE ratio based on formula?
Management action and stock value REH Corporation's most recent dividend was $2.78 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions. a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth rate to 9% and lower the required return to 11%. c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 7% and raise the required return to 16%. d. Merge with another firm, which will reduce the growth rate to 1% and raise the required return to 19%. e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 16%. a. If the firm does nothing that will leave the key…
Give typing answer with explanation and conclusion 1. If the value of sustainable investing is $171.1 and the discount rate is 8% while the value of non-sustainable investing is $15.7 and the company has a 28.7% probability of being sustainable. What is the expected value today of the company given a 18 year horizon? (Answer to 2 decimal places in $).
Suppose the profitable company, Hermes, Inc., previously calculated its external financing needs (EFN) to be $18,200,000. What will happen to the EFN if management now decides to decrease the dividend payout ratio from 35.00% to 25.00%? (1) It will increase to some value greater than $18,200,000. (2) It will fall to some value lower than $18,200,000. (3) It will remain at $18,200,000. (4) The answer depends on Hermes, Inc.’s growth rate in sales. (5) The answer depends on Hermes, Inc.’s profit margin.
North Construction has paid a quarterly dividend of $1.50 per share for the last five years. The the company to reduce the amount of its next dividend payment. Lis most apt to cause Multiple Choice decrease in the next quarter's revenue decrease in the next quarter's net income loss of a major customer which lowers the overall company's outlook for the next few years major lump sum cash outflow next month to start a new project increase in the number of new projects under consideration as compared to prior years
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Management action and stock value REH Corporation's most recent dividend was $1.79 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions. a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth rate to 7% and lower the required return to 13%. c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 9% and raise the required return to 16%. d. Merge with another firm, which will reduce the growth rate to 2% and raise the required return to 16%. e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 8% and increase the required return to 16%. ... a. If the firm does nothing that will leave the key…
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