Good day, I trust you are well. Kindly assist with below...
The company is an online retailer of books, CDs and DVDs. Thecompany was set up five years ago by a wealthy entrepreneur, DavidNile, and has now grown to the point where the board of directorshave decided that a listing should be sought on the local stockexchange. David Nile owns 80% of the ordinary shares and has agreedto sell all of these as part of the public offering.
Recently, the board of directors began to debate the futuredividend policy of the company, assuming the stock exchange listingwould be successful. However, there was a clear divergence ofviews. The chairman felt that the current dividend policy wasunacceptable and needed to be changed. He argued that the companyhad been investing heavily in its distribution methods and inadvertising in the early years and that dividend policy had notbeen a pressing issue. However, the proposed listing must now leadto a reconsideration of the importance of dividends. The chiefoperating officer, on the other hand, felt that the chairman’sconcerns were unfounded as the pattern of dividends had no effecton the shareholder wealth.
Information concerning the company since it was first set up isas follows:
| Year ended 30 November | Net profits after taxation | Ordinary dividends | Ordinary shares in issue |
|---|
| R | R | R |
| 2014 | 650 | 320 | 800 |
| 2015 | 520 | 150 | 1 000 |
| 2016 | 760 | 480 | 1 000 |
| 2017 | 1 240 | 600 | 1 500 |
| 2018 | 1 450 | 540 | 1 500 |
3.1 Evaluate the views expressed by the chief operating officerand by the Chairman. (12)
3.2 Analyse the dividend policy that has been pursued to dateand discuss whether a change would be in the interests ofshareholders. (8)
3.3 Discuss the key points that should be considered whenestablishing an appropriate dividend policy for the company.(5)
