QUESTION 1 (5 marks)

In August 2019 Coral Ltd reported net profits after tax of $600,000 for its financial year 2018-19 and announced its net profits after tax expectation for the next financial year, 201920, to be 25% higher than this years figure. The company operates with a dividend payout ratio of 70%, which it plans to continue. It will pay the annual dividend for 201819 on 1 October, 2019, and the dividend for 201920 on 1 October, 2020.

Dan Brown owns 12% of the ordinary share capital of Coral Ltd. In October, 2020, Dan believes he will need $30,000 for consumption and he also wishes to pay off his home loan of $70,000. If the dividend from Coral Ltd is his sole income, how much can he consume in October 2019? The capital market offers an interest rate of 9% pa.