QUESTION FOUR [25] Shady Ltd is deciding whether to pay out R100 000 in excess...
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Accounting
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.
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