Question 6 (7 marks)

George is working for FreshFruit Imports Ltd. The firm is going to pay a stock dividend by splitting their shares with the ratio of 4 to 3. The firm has 210,000 outstanding common shares, a P/E ratio of 18.5 and $325,000 net income available for common shareholders. George currently owns 1,000 shares of his company.

Required:

a. If the market price of the FreshFruit Imports Ltds share 2 months after splitting bounced back to the level before splitting, calculate the increase in the total market capitalisation of the firm and total value of Georges shareholding. (4 marks)

b. FreshFruit Imports Ltd. is going to transfer a payment of AUD 475,000 to a partner in Switzerland to pay for their imports. If the direct quote of Swiss Franc in Sydney is 1.45, how much in local currency will the Swiss partner receive? (3 marks)