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QUESTION FOUR Durant Limited is a construction company based in Malawi and has presence in almost seven countries in sub-Saharan Africa. Because of the aggressive government construction programs in the region, the company has seen an increase in its orders and has reached a point where a significant amount of finance is needed to source future growth. The board recently decided to list the business on the Johannesburg Stock Exchange and is currently examining the full implications of this decision on its operations. The Board Chairperson has argued that a stock exchange listing may alter the way in which the business views their dividend policy. However, the CEO has insisted that the dividend policy is unimportant as the pattern of dividend has no effect on shareholder wealth. Key data on the dividend policy adopted is as follows: Financial Year End Profits after Tax (K'000) 1,140 Ordinary Dividends (K'000) 480 2013 Ordinary Shares in Issue (K'000) 1,500 2,200 2,200 2012 990 550 2011 1,232 1,056 Profits after Tax Financial Year End Ordinary Dividends (K'000) (K'000) 1,140 480 2013 2012 990 550 Ordinary Shares in Issue (K'000) 1,500 2,200 2,200 3,200 3,400 2011 1,232 1,056 2010 2,520 384 2009 2,800 1,360 Required: A. Discuss the dividend policy followed by Durant Limited over the past five years. (5 Marks) B. Evaluate the views expressed by the Chairperson of the Board and the CEO and discuss the key points to be taken into account when establishing an appropriate dividend policy for a business. (20 Marks) [TOTAL: 25 MARKS] QUESTION FOUR Durant Limited is a construction company based in Malawi and has presence in almost seven countries in sub-Saharan Africa. Because of the aggressive government construction programs in the region, the company has seen an increase in its orders and has reached a point where a significant amount of finance is needed to source future growth. The board recently decided to list the business on the Johannesburg Stock Exchange and is currently examining the full implications of this decision on its operations. The Board Chairperson has argued that a stock exchange listing may alter the way in which the business views their dividend policy. However, the CEO has insisted that the dividend policy is unimportant as the pattern of dividend has no effect on shareholder wealth. Key data on the dividend policy adopted is as follows: Financial Year End Profits after Tax (K'000) 1,140 Ordinary Dividends (K'000) 480 2013 Ordinary Shares in Issue (K'000) 1,500 2,200 2,200 2012 990 550 2011 1,232 1,056 Profits after Tax Financial Year End Ordinary Dividends (K'000) (K'000) 1,140 480 2013 2012 990 550 Ordinary Shares in Issue (K'000) 1,500 2,200 2,200 3,200 3,400 2011 1,232 1,056 2010 2,520 384 2009 2,800 1,360 Required: A. Discuss the dividend policy followed by Durant Limited over the past five years. (5 Marks) B. Evaluate the views expressed by the Chairperson of the Board and the CEO and discuss the key points to be taken into account when establishing an appropriate dividend policy for a business. (20 Marks) [TOTAL: 25 MARKS]

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