Question 5 (7 marks) You are working for Medical Equipment Exports Group. Your corporation is going to pay an annual dividend of $5 per share and an extra dividend of $1.5 per share in 4 weeks. The company's stock is currently listed and actively traded on the ASX. Required: a) The standard process of settlement in ASX is T+2. If tomorrow is the record date for dividend payment for Medical Equipment Exports Group, when is the ex-dividend date for trading of this share on the ASX? Calculate the ex-dividend price if the corporation's closing price the day before ex-dividend date is $143.5, assuming the dividend flat tax rate is 17%. (3 marks) b) Medical Equipment Exports Group has an extra cash of A$645,000. The AUD/USD exchange rate in New York is 0.74659. The USD/AUD rate in Sydney is 1.38127. Is there any arbitrage profit possible? Set up an arbitrage scheme with the extra cash. What is the potential gain in the AUD dollar, disregarding bid-ask spread? (3 marks) c) Medical Equipment Exports Group considers which method of dividend payment should they use next accounting period in the context that they may need to keep most of the net income this accounting period as the retained earnings for a very capital-extensive investment project. Advise which method of dividend payment the company would choose so they can still improve the market value of the company and generate a positive share return for shareholders. (1 mark) Question 5 (7 marks) You are working for Medical Equipment Exports Group. Your corporation is going to pay an annual dividend of $5 per share and an extra dividend of $1.5 per share in 4 weeks. The company's stock is currently listed and actively traded on the ASX. Required: a) The standard process of settlement in ASX is T+2. If tomorrow is the record date for dividend payment for Medical Equipment Exports Group, when is the ex-dividend date for trading of this share on the ASX? Calculate the ex-dividend price if the corporation's closing price the day before ex-dividend date is $143.5, assuming the dividend flat tax rate is 17%. (3 marks) b) Medical Equipment Exports Group has an extra cash of A$645,000. The AUD/USD exchange rate in New York is 0.74659. The USD/AUD rate in Sydney is 1.38127. Is there any arbitrage profit possible? Set up an arbitrage scheme with the extra cash. What is the potential gain in the AUD dollar, disregarding bid-ask spread? (3 marks) c) Medical Equipment Exports Group considers which method of dividend payment should they use next accounting period in the context that they may need to keep most of the net income this accounting period as the retained earnings for a very capital-extensive investment project. Advise which method of dividend payment the company would choose so they can still improve the market value of the company and generate a positive share return for shareholders. (1 mark)
