Question

In: Finance

Fastspeed Couriers has experienced one of their toughest years yet. They are deciding whether to pay...

Fastspeed Couriers has experienced one of their toughest years yet. They are deciding whether to pay out R80 000 in accumulated cash in the form of an extra dividend to shareholders or embark on a share repurchase campaign. Current profits are R3.40 per share and the share sells for R36. Their abbreviated balance sheet before paying out the dividend is as follows:


Assets

Bank/Cash 100 000

Other Assets 280 000

Total    380 000

Equity & Liability

Equity 310 000

Debt 70 000

Total 380 000

Evaluate each alternative (i.e. pay the dividend or repurchase the shares) by:

1.1 Calculating the number of shares in issue. (2)

1.2 Calculating the dividends per shares (only for the first alternative, i.e. pay the dividend). (2)

1.3 Calculating the new share price. (4)

1.4 Calculating the EPS. (5)

1.5 Calculating the Price-Earnings ratio. (4)

Solutions

Expert Solution

1.1 Calculating the number of shares in issue.

Ans: No of share outstanding = Share holder fund / Profit per share = 310000 / 3.4 = 91176

1.2 Calculating the dividends per shares (only for the first alternative, i.e. pay the dividend).

Ans: Divident Per share = Funds available for distribution of divident / No of share outstanding = 80000/91176 = 0.887

1.3 Calculating the new share price. if buy back takes place

Ans: No of share buys back = Amount available for buy back / Market value of share = 80000/ 36 = 2222.22

EPS = 2.5856 x PE ratio 10.588 = 27.38 Price of new share

1.4 Calculating the EPS if buy back takes place

Ans: Total asset - Liability / No shares outstanding = Cash 20000 ( 100000 - 80000) + Other assets 280000 - 70000 debt / No of share out standing 88953.78 (91176-2222.22) = 230000/88953.78 = 2.5856

1.5 Calculating the Price-Earnings ratio.

Ans: Market value of share / EPS = 36/3.4 =10.588


Related Solutions

QUESTION ONE Pukri Ltd is deciding whether to pay out R90 000 in excess cash in...
QUESTION ONE Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for R20. The abbreviated balance sheet before paying out the dividend is: Equity:240 000 Bank/cash: 90 000 Debt:  160 000 Other Assets: 310 000 400 000 400 000 Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by: 1.1 Calculating the number of...
11.1.2 FINANCIAL MANAGEMENT [100] QUESTION ONE [20] Pukri Ltd is deciding whether to pay out R90...
11.1.2 FINANCIAL MANAGEMENT [100] QUESTION ONE [20] Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for R20. The abbreviated balance sheet before paying out the dividend is: Equity 240 000 Bank/cash 90 000 Debt 160 000 Other Assets 310 000 400 000 400 000 Evaluate each alternative (i.e: pay the dividend or repurchase the...
board is deciding whether it should pay a liquidating dividend of $ 50 per share or...
board is deciding whether it should pay a liquidating dividend of $ 50 per share or an equivalent extraordinary annual dividend. The finance department got the following relevant information for making the decision: a. 85% of the shareholders are between 30 and 50 years old. The remaining 15% is more than 70 years old. b. The average tax bracket of Payola’s shareholders is 25% higher than the average of the investors in public companies in the country. c. The government...
A city is deciding whether to pay a locally owned construction firm to build a new...
A city is deciding whether to pay a locally owned construction firm to build a new bridge. The city would finance the construction by borrowing. They would raise local property taxes to collect $20M more per year than they would without the new bridge. (M stands for million.) The extra $20M per year would repay the loan and pay for maintenance and all other costs of operating the bridge during its 50 year lifetime. The government expects that the demand...
Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form...
Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for R20. The abbreviated balance sheet before paying out the dividend is: Equity 240 000 Bank/cash 90 000 Debt 160 000 Other Assets 310 000 400 000 400 000 Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by: 1.1 Calculating the number of...
Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form...
Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extradividend or a share repurchase. Current profits are R2,40 per share and the share sells forR20. The abbreviated balance sheet before paying out the dividend is:Equity 240 000 Bank/cash 90 000Debt 160 000Other Assets 310000400 000400 000Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by:1.1 Calculating the number of shares in issue (4)1.2 The dividends per share (for the...
6. Payola Company board is deciding whether it should pay a liquidating dividend of $ 50...
6. Payola Company board is deciding whether it should pay a liquidating dividend of $ 50 per share or an equivalent extraordinary annual dividend. The finance department got the following relevant information for making the decision: a. 85% of the shareholders are between 30 and 50 years old. The remaining 15% is more than 70 years old. b. The average tax bracket of Payola’s shareholders is 25% higher than the average of the investors in public companies in the country....
Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form...
Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for R20. The abbreviated balance sheet before paying out the dividend is: Equity 240 000 Bank/cash 90 000 Debt 160 000 Other Assets 310 000 400 000 400 000 Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by: 1.1 Calculating the number of...
Goodwin Technologies, a relatively young company, has been wildly successful but has yet to pay a...
Goodwin Technologies, a relatively young company, has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. She expects Goodwin to pay a $1.75000 dividend at that time (D₃ = $1.75000) and believes that the dividend will grow by 9.10000% for the following two years (D₄ and D₅). However, after the fifth year, she expects Goodwin’s dividend to grow at a constant rate of...
Goodwin Technologies, a relatively young company, has been wildly successful but has yet to pay a...
Goodwin Technologies, a relatively young company, has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. She expects Goodwin to pay a $5.00000 dividend at that time (D₃ = $5.00000) and believes that the dividend will grow by 26.00000% for the following two years (D₄ and D₅). However, after the fifth year, she expects Goodwin’s dividend to grow at a constant rate of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT