Nezcafe Ltd is a Brazilian company who is internationally recognized for being the market leader in in the coffee production industry. They were founded about 100 years ago, and expanded in various other countries, including into the Southern Part of Africa. The company is listed on the Johannesburg Stock Exchange and has been making fruitful profits in the 2023 financial year. The Chief Executive Officer Mr Ndlovu is of the opinion that Nezcafe should use the surplus profits to re-purchase shares (Share buy-back), however the board of directors think the Nezcafe should pay amend their dividend policy to pay out an extra dividend to its shareholders with the surplus profits. Mr Ndlovu didnt seem happy about the boards decisions as he wanted Nezcafe to return capital to shareholders, with the share buy-back.

Required:

1. How is the announcement of Nezcafe's dividend policy likely to affect the share price? (10 marks)

2. Explain why Mr Ndlovu wants to use the share buy-back to return capital to shareholders?. (10 marks