QUESTION 2 (10 marks) Vukani Limited maintains a debt-equity ratio of 0.40 and follows a residual dividend policy. The company has profit before tax for the year to be R1 600 000. The financial Manager has identified a lucrative opportunity which requires R1 400 000 initial capital investment. Assume the South African Tax Rate is applicable. REQUIRED: 2.1 Calculate the total amount that Vukani will pay out in dividends this year. (6) 2.2 Identify and briefly explain two alternative dividend policies that Vukani can (4) adopt. QUESTION 3 (15 marks) Power Products (Pty) Ltd is a South African based company that imports high quality electronic equipment. The company recently acquired electronics from a supplier in the USA for US$500 000. The amount is payable in four months' time. In order to hedge against the weakening Rand, the financial director is considering taking out a forward exchange contract (FEC) with the bank. The bank is prepared to sell a four month FEC at R14.96 per US$ to the company. The spot rate for the US$/R exchange rate today is R14.50. The expected inflation rate in South Africa for the foreseeable future is 6% per annum and the USA inflation rate for the foreseeable future is 2% per annum. REQUIRED: 3.1 Define the exchange rate risk and briefly explain the three different types of exchange rate exposures. 3.2 (7) Based on the relative purchase power parity, determine what would the R/US$ (4) exchange rate be in 4 months' time. 3.3 Based on your answer from 3.2, calculate the profit or loss that Power Products (Pty) Ltd would make if they decided to enter into the Forward Exchange Contract (FEC). (4)