Rowak plc is a Syldavian industrial company listed on the Klow stock exchange. The number of shares in issue has been constant over the period at one million. The corporate income tax rate is 33%.

Calculate Rowak's after-tax ROCE and ROE in each year. What do you think?

What do you think of the fact that Rowak has never paid a dividend?

In early February 2020, the company's market capitalisation is 200 million and its managers believe the shares are worth 150 each. Rowak's chairman proposes to the board of directors that 50 million be devoted to buying back (and cancelling) outstanding shares. The programme is to be financed by borrowing at 10% before tax. The board of directors refuses. Why, in your opinion?

In March 2020, the company's market capitalisation has fallen to 90 million (still with the same number of shares in issue) and the estimated value of the share is 120. Rowak's chairman puts forward his proposal again. What do you think now?

(Figures in millions)

Revenue Net profit Pre-tax interest expenses Book value of equity Net debt Market capitalisation 2015 170 8 9 50 60 55 2016 130 10 10 60 70 90 2017 170 11 10 71 75 152 2018 220 13 9 84 76 195 2019 230 13 7 97 70 210 2020 240 13 6 110 65 200 AppendixLO1