QUESTION 1 Bathwick PLC is a tyre manufacturer based in South of England. The company's current earnings per share is 2, and it has just paid a dividend of 0.40 per share, which is in line with its traditional plowback ratio of 80%. The company estimates that the return on equity on its investment opportunities is 20%. In the past three years, the returns of Bathwick and FTSE All-Share Index were as follows: Year Bathwick FTSE 2019 6.06% 5.05% 2018 -2.64% -2.20% 2017 3.78% 3.15% The expected return on the market portfolio is 16% and the risk-free rate of return is 6%. 1.1. Some large shareholders of the company are piling pressure on the board of directors for the company to pay a constant dividend each year. Explain how such a policy could be achieved and discuss its implications for shareholders. Assume that this policy change would leave the company's cost of equity unaffected. The maximum word count is 500 words (15%) 1.2. The CEO of Bathwick PLC asked the CFO to prepare a detailed report on the performance of the company's shares over the past 10 years. Discuss (1) the risk-adjusted performance measures the CFO can make use of in her report and (ii) the key issues the CFO should be aware of when evaluating the performance of Bathwick shares. The maximum word count is 750 words (18%) TOTAL (33%)