Question 1 (20 Marks) 1.1 Most firms adopt either the policy of residual amounts, the stable growth policy or the target pay-out ratio policy as their dividend policy. Their choice of policy will depend on the current situation of the firm and on the firms perception of its shareholders best interests. Required: Give a detailed description of each of the above-mentioned policies. (8 marks) 1.2 Explain the relationship between a firms dividend policy and its share price. (4 marks) 1.3 Mary lives in a country where the following Consumer Price Index levels for the entire country were recorded across two years: March 2023 = 55,3 March 2022 = 52,4

Required: Using these figures, calculate the inflation rate for 2023. Round to 3 decimal places. Clearly indicate the formula that you will use. What effect might be expected on the nominal rate of interest because of this increase or decrease? (8 mark

Question 3 (12 marks) You are recently employed as the cost accountant at a mining project in East London. The ECO informed you that he believes it is time to open a new section at the mining field. This new section will host various activities, such as extraction and smelting , In order to open this new section, he will need to acquire mining equipment. The believes that buying new equipment will attract more customers and therefore bring in a new cash flow stream. He identified the below package that he can purchase. He believes that the n equipment will last for 6 years before it needs to be replaced. The cost of capital of the equipment is 14%. Mining Project Initial Investment R2 000 000 Cash Flow Year 1 R600 000 Cash Flow Year 2 R580 000 Cash Flow Year 3 R540 000 Cash Flow Year 4 R480 000 Cash Flow Year 5 R410 000 Cash Flow Year 6 R390 000 Required: 3.1 Calculate the net present value of the project. Round your factor to 3 decimals. (10 Marks) Question 4 (21 marks) You recently finished studying for a bachelor of Financial Management. James knows that you have gained a vast amount of knowledge whilst studying and is therefore seeking your advice. James informed you that his cellphone shop is doing quite well. He does, however, want to attract more customers. James cellphone shop sells a new type of cellphone for R800. His variable cost per cellphone is R550. You informed James that he needs to investigate extending his customers payment period from 45 days to 60 days. This is a good way to attract more customers. After giving this idea some thought, James informed you that if he implements the new credit policy, he believes his credit sales will increase from 720 cellphones per year to 900 cellphones per year. He also informed you that if he implements the new policy, it will, however, increase bad debts from 5% of credit sales to 8% of credit sales. James has a required return on investment of 13%. Assume 360 days per year and 30 days per month. Required: 4.1 Calculate the effect on profit if the new policy is adopted. Show all your workings. (3 Marks) 4.2 Calculate the effect on bad debts if the new policy is adopted. Show all your workings. (5 Marks) 4.3 Calculate the cost of marginal investment in accounts receivable if the new policy is adopted. Show all your workings. (8 Marks) 4.4 Calculate the net effect of the new policy and advise Uncle Petrus if he should implement the new policy or not. Show all your workings. (5 Marks