Question

Memory makers cc are deciding wether to pay R90 000 in accumulated cash in the form of an extra dividend to shareholders or embark on a share repurchase scheme.Current profits are R3.40 per share and their shares currently trade for R35.

This is the abbreviated balance sheet before paying out the dividend

Equity R350 000 BANK/CASH 130 000

DEBT R120 000 Other assets 340,000

= 470 000 =470 000

1.calculate the number of shares in issue

2. the dividends per share

3. calculate the new share price

Calculte the eps and the price -earning ratio

Please show and explain the formulars.

Answer 1

Ans

1	Market Value of Equity( Assumed to be the same as book value) (a)	350000
	Market Price per Share                                                                             (b)	35
	No of Shares in issue                           a/b	10000
2	Dividend Per Share= Total Dividend proposed /No of shares	9.00
3	New Share price assuming the price will come down to the extent of dividend declared
	Cum Dividend Price -Dividend= Ex dividend Price 35-9	26
4	Earning Per Share
	Profit Available to Equity shareholders( Per Share Profit * No of Shares) (35*10000) (a)	34000
	No of Shares       (b)	10000
	EPS a/b	3.4
	Price Earning Ratio : New Price /EPS = 26/3.4	7.65