Leker Wines was so impressed with your grasp of capital structure basics that they have come back to you for some advice on dividend policy. The managers of Leker Wines claim to have several projects available to choose from next year, where they plan to invest the funds from operations, and are wondering if the firm really should be paying dividends. The projects and their characteristics are given in Exhibit 4 and all the other information is as given in Exhibit 5. The firm plans to finance 30% of its future net capital expenditures (Capital Expenditure - Depreciation) and working capital needs with debt. Leker Wines expects its revenues to grow at the sustainable growth rate next year, and its expenses to remain at 30% of revenues. The depreciation and interest expenses will remain unchanged at R100 thousand in the next year. The working capital, as a percentage of revenue, will remain unchanged next year.

a. Estimate Leker Wines growth rate in revenues for next year? (4 marks)

b. How much can the company afford to pay in dividends next year? (Hint: First determine Leker Wines capital budget for next year, i.e. which projects available for next year should Leker Wines take?) (13 marks)

c. Now assume that the firm actually pays out R1.50 per share in dividends next year. The current cash balance of the firm is R150 thousand. How much will the cash balance of the firm be at the end of next year, after the payment of the dividend?