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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Management action and stock value REH Corporation's most recent dividend was $2.67 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 11%. c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 9% and raise the required return to 19%. 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 9% and increase the required return to 19%. C a. If the firm does nothing that will leave the key…
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You have been asked by your employers to demonstrate your knowledge in business valuation process, by analyzing the value of Best Group Savings and Loans Company (BGSLC). The company paid a dividend of GH¢ 250,000 this year. The current return to shareholders of companies in the same industry as BGSLC is 12%, although it is expected that an additional risk premium of 2% will be applicable to BGSLC, being a smaller and unquoted company. Compute the expected valuation of BGSLC, if: The current level of dividend is expected to continue into the foreseeable future The dividend is expected to grow at a rate 4% par into foreseeable future The dividend is expected to grow at a 3% rate for three years and 2% afterwards
A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to DECREASE? Group of answer choices: The company begins to pay employees weekly rather than monthly. The company decides to take discounts on purchased materials. The company’s profit margin increases. The company learns that it has no excess capacity. The company increases its dividend payout ratio.
I believe the answer is b but I would appreciate this solved and worked out.
Nikul
A financial analyst is attempting to assess the future dividend policy of Environmental Systems by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the development stage (1). During the growth stage (II), she anticipates 14 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage (III), the payout ratio will go up to 40 percent and will eventually reach 53 percent during the maturity stage (IV). a. Assuming earnings per share will be as follows during each of the four stages, indicate the cash dividend per share (if any) during each stage. Note: Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and round your answers to 2 decimal places. Stage I Stage II Stage III $ 0.25 1.65 2.40 Stage IV 3.90 Dividends Stage I Stage II Stage III Stage IV b. Assume in Stage IV that an investor owns 325 shares and is in a 15 percent tax bracket. What will…
This is the full question Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV0 = $1 per share. Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of 0.5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 3.20% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Dividends one year from now (D.) Horizon value (P) Intrinsic value of Portman's stock Value The risk-free rate (TRF) IS 4.00%, the market risk premium (RPM) is 4.80%, and Portman's beta is 1.30.…
d. As an alternative to maintaining the same dividend payout ratio, Brooks is considering maintaining the same per-share dividend in 2016 that it paid in 2015. If it chooses this policy, what will be the company's dividend payout ratio in 2016? Round your answer to two decimal places. % e. Assume that the company is interested in dramatically expanding its operations and that this expansion will require significant amounts of capital. The company would like to avoid transactions costs involved in issuing new equity. Given this scenario, would it make more sense for the company to maintain a constant dividend payout ratio or to maintain the same per-share dividend? I. Since the company would like to avoid transactions costs involved in issuing new equity, it would be best for the firm to maintain the same per-share dividend. II. Since the company would like to avoid transactions costs involved in issuing new equity, it would be best for the firm to maintain a constant dividend payout…
Old Comm Corp. is an old company in an industry which is declining. You are trying to determine what a fair price for the company would be given these facts. You know the firm just paid a dividend of $3.01. You expect the industry to shrink by -13.3% a year and assume this can be used as the firm's growth rate. Your estimated discount rate for the firm is 10.996. Given your assumptions, what should be the price of Old Comm Corp.? Answer with dollars and cents
ABC and company has been following a dividend policy which can maximize the market value of the firm as per Walter’s model. Accordingly, each year, at dividend time the capital budget is renewed in conjunction with the earnings of the periods and alternative investment opportunities for the shareholders.In the current year, the firm expects earnings of Rs.5,00,000. is estimated that the firm can earn Rs.1,00,000 if the profits are retained. The investors have alternative investment opportunities that will yield them 10% return. The firm has 50,000 shares outstanding. What should be the dividend payout ratio in order to maximize the wealth of the shareholders?Also find out the current market price of the share.

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