Question Hawking plc is a construction firm. Its profits before interest and tax increase from 20 million in 2018-19 to 40 million in 2019-20. This is attributed to sales expansion, while profit margins did not changed. The management culture of the firm is every conventional particularly with respect to dividend and financing policies. There are 2 recommendations by the board. One is to redeem the 5 million of bonds issued many years ago, the other is to increase the dividend payout. The firm's capital structure is shown below: mill 180 220 Issued equity (nominal value 50 pence) Reserves Long-term creditors: Nine percent collateralised bond 2004 60 EGE Further information (1) The firm possess no overdraft. The firm pays corporate tax at a rate of 33% The income tax rate is 20% Interest charge is 10% The last dividend paid by the firm was 2.90 pence per share (vi) Industry averages currently stand as follows: Dividend cover 2 times Leverage (long-term debt/equity) 24% Interest cover 3 times (vii) Hawking's P:E ratio is 12:1 Required: (a) Calculate the dividend cover (4 marks) the dividend yield for both 2018-19 and for the reporting year 2019-20 if the dividend is increased as proposed. (4 marks) (b) You have been hired as an advisor for Hawking plc. Based upon the information, write a report to your superior, which examine and analyse the relative merits of the 2 proposals. (17 marks) [Total : 25 Marks]