Fit to page Question 2 ID Page view (30 marks) Dube Ltd is a major regional retailer The CEO is concerned with the slow growth both of sales and of net income (profit) and the subsequent effect on the trading price of the shares. Selected financial data for the past three years follow Dube Ltd (In Rand) 2018: 1. Sales 100 000 000 2. Net Income (profit) 3 000 000 3. Dividends declared and paid 1 200 0000 4. Owner's equity (shareholders) 40 000 000 6. Debt (Liabilities) 10 000 000 Net income (profit) to sales 3% Asset turnover 2 times 6. Return on equity 75% 7. Debt to total assets 20% - 2017 96 700 000 2 900 000 1 200 000 38 200 000 10 200 000 3% 2 times 76% 21 2% 2016 93 300 000 2 800 000 1 200 000 36 500 000 10 200 000 3% 2 times 77% 21 8% The CEO believes that the price of the shares has been adversely affected by the downward trend of the return on equity, the relatively low dividend payout ratio, and the lack of dividends He beleves that the company should be able to meet these objectives by 1) Increasing sales and net income (profit) at an annual rate of 10% a year and 2) Establishing a new dividend policy that calls for a dividend payout of 60% of earnings or R 2 000 000, whichever is larger The 10% annual sales increase will be accomplished through a product enhancement programme The CEO believes that the present net income (profit) to sales ratio of 3% will be unchanged by the cost of this new programme and any interest paid on new debt He expects that the company can accomplish this sales and income/profit growth while maintaining the current relationship of total assets to sales Any capital that is needed to maintain this relationship and that is not generated internally would be acquired through long-term debt financing The CEO hopes that debt would not exceed 25% of total labilities and owners' equity 1 Required: Using the CEOs programme, prepare a schedule that shows the appropriate data for the years 2019, 2020 and 2021 for the items numbered 1 through 7 on the preceding schedule (20) 2. Can the CEO meet all of his requirements of a 10% per-year growth in income and sales is achieved? Explain your answer (5) 3 What alternative actions should the CEO consider to improve the return on equity and to support increased dividend payments