Case Study 1 (40 marks)

SB is a listed company and one of the board members of SB suggested that the company, make a special dividend of R500 million to all shareholders, as a reward for their capital investment in SB. Another member of the board thought it is best for SB to allow for company consolidation, and increase equity value, by engaging in a share buy-back to the value of the R500million. SB is considering both options. The company has currently maintained an earnings per share of R1,50. The company's net assets value is R8.00. SB Shares are currently trading at R10.00 and have 100million shares in issue.

Required:

1. With regards to the decision for a special dividend or a share buy-back, determine the impact of either decision on SB's

Earnings per share (EPS),

Share price and;

Net asset value per a share.

You are required to comment on each decision

(30 marks)

2. Critically comment on what factors SB should consider when declaring a dividend and when choosing a share buy-back.

(10 marks)