Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QUESTION FOUR [25] Shady Ltd is deciding whether to pay out R100 000 in excess cash in the form of an extra dividend or implement

QUESTION FOUR [25]

Shady Ltd is deciding whether to pay out R100 000 in excess cash in the form of an extra dividend

or implement a share repurchase. Net profit after tax is R155 000 and the share sells for R10. Their

summarized statement of Financial Position prior to the dividend payment is as follows:

Assets Equity and Liabilities

Tangible assets 340 000 Equity 500 000

Inventories 50 000 Debt 100 000

Receivables 70 000

Bank/cash 14 000

Total 600 000 Total 600 000

Required:

Evaluate each alternative (i.e. pay the dividend or repurchase the shares) by:

4.1 Calculating the number of shares in issue. (3)

4.2 Calculating the dividends per shares (only for the first alternative, i.e. pay the dividend). (3)

4.3 Calculating the new share price. (9)

4.4 Calculating the Earnings Per Share. (5)

4.5 Calculating the Price-Earnings ratio.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Best Practices

Authors: Steven M. Bragg

3rd Edition

0471444286, 978-0471444282

More Books

Students also viewed these Accounting questions