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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
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
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