Stott Plc (Stott) has 150 million in excess cash and no debt. The firm expects to generate additional free cash flows of 105 million per year in subsequent years and will pay out these future free cash flows as regular dividends.

Stotts unlevered cost of capital is 6% and the company presently has 6 million shares outstanding. Stott's board is meeting to decide whether to pay out its 150 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock.

As some preliminary calculations to assist the board meeting you have been tasked with answering the following: -

1. What is the cumulative-dividend price, the regular future annual dividend and the current market value of Stott?

(4 marks)

2. Assume that Stott uses the entire 150 million in excess cash to pay a special dividend. What will Stott Plcs ex-dividend price be?

(2 marks)

c) Assume that Stott uses the entire 150 million to repurchase shares at the cumulative div price calculated in (a) and answer the following: -

i. What is the number of repurchased shares?

(Round to the nearest share)

(2 mark)

ii. What is the number of outstanding shares?

(2 mark)

iii. What is the amount of regular yearly dividends in the future?

(2 mark)

iv. Calculate the share price after the repurchase.

(2 mark)

d) The board of Pawson plc is considering changing from its current dividend policy of paying out what is left over from its available cash after making investments. The forecast dividends if the company continues with its current policy and the forecast dividends if it changes to the new policy are shown below.

Forecast dividend payments 1 If current dividend policy continues

Year	2020	2021	2022	2023	2024
Dividend per share (pence)	20	36	42	47	48

Forecast dividend payments 2 If new policy is employed

Year	2020	2021	2022	2023	2024
Dividend per share (pence)	20	25	31	39	48

Explain which dividend policy Pawson is currently using and the advantages and disadvantages of the policy. Explain which policy is being employed in the new proposal and explain the advantages and disadvantages of the policy.

(Maximum wordcount: 220 words)