Corrie (Pty) Ltd, a manufacturer of medical devices and fitness equipment, has just reported a net income of R87 million for the 2020 financial year. The company is considering investing in the following divisible projects for the 2021 financial year:

Project Cost (Rmillion) NPV (Rmillion)

A 55.0 9.8

B 40.0 5.7

C 60.0 10.2

D 35.0 5.1

E 20.0 4.5

4.5

Corrie (Pty) Ltd has a capital budget of R120 million for the 2021 financial year. The company has a target capital structure of 45% debt and 55% equity. The company's weighted average cost of capital is 15%.

Required:

1.1 Which projects should Corrie (Pty) Ltd invest in for the upcoming financial year? What is the total net present value (NPV) resulting from the selected projects?

1.2 If Corrie (Pty) Ltd strictly follows a residual approach to dividends, determine the total rand value of dividends and the dividend pay-out ratio for the 2020 financial year. In the process, explain what the residual dividend model is.

1.3 Corrie (Pty) Ltd is considering listing on the Johannesburg Stock Exchange (JSE), in order to gain access to a larger capital base.

had been investing heavily in its distribution methods and in advertising in the early years, and that the dividend policy had not been a pressing issue. However, the proposed listing must now lead to a reconsideration of the importance of dividends.

The Chief Financial Officer (CFO), on the other hand, felt that the Chairman's concerns were unfounded, as the pattern of dividends had no effect on shareholder wealth.

Evaluate the views expressed by the CFO and the Chairman regarding dividends.