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• Legal requirements-they can be classified as follows;-
i. The net profit rule which states that dividends can only be paid from the companies available profits.
ii. Insolvency rule which states that the company cannot pay dividends when its insolvent i.e. when total assets are less than liabilities.
iii. Capital requirement rule which prohibits payment of dividends from capital through sale of assets to raise money to pay dividends.
• Shareholders expectations-if the company shareholders are wealthy, in a high income bracket, they may prefer capital gains over dividends and therefore company may retain more funds.
• Bond covenants-these are terms and conditions of the loan agreement, the restrictions may restrict the company from paying dividends, unless earnings exceed a certain amount.
• Industrial norms – a company will adopt a dividend policy which is similar to its competitors in the industry that it operates.
• Profitability and liquidity position- companies’ ability to pay dividends will be determined by the ability to generate stable profits.
Kavungya answered the question on May 5, 2022 at 13:53
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Date posted: May 5, 2022. Answers (1)
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The company's cost of capital is 12%.
Required;-
The share price of the company which might be expected by the market
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(ii) If the company announces the change of dividend policy.
Date posted: May 5, 2022. Answers (1)
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Date posted: May 5, 2022. Answers (1)
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Date posted: May 5, 2022. Answers (1)
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Required:
The dividend per share for the current year.
Date posted: May 5, 2022. Answers (1)
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Required:
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ii. Dividend cover.
iii. Price – earnings ratio.
Date posted: May 5, 2022. Answers (1)
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Date posted: May 5, 2022. Answers (1)
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Date posted: May 5, 2022. Answers (1)
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Required:
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Required:
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Date posted: May 5, 2022. Answers (1)
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Required;-
Using the Modigliani and Miller (MM) model, show that the payment of dividends does not affect the value of the firm.
Date posted: May 5, 2022. Answers (1)
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Date posted: May 5, 2022. Answers (1)
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Date posted: May 5, 2022. Answers (1)
- Three years ago, Mrs. Rehema Waziri was retrenched from the Civil Service. She invested substantially all her terminal benefits in the shares of ABC Ltd.,...(Solved)
Three years ago, Mrs. Rehema Waziri was retrenched from the Civil Service. She invested substantially all her terminal benefits in the shares of ABC Ltd., a company quoted on the stock exchange. The dividend payments from this investment makes up a significant position of Mrs Waziri’s income. She was alarmed when ABC Ltd. dropped its year 2001 dividend to Sh.1.25 per share from Sh.1.75 per share which it had paid in the previous two years.
Mrs Waziri has approached you for advice and you have gathered the information given below regarding the financial condition of ABC Ltd. and the finance sector as a whole.
ABC Ltd. Balance Sheets as at 31 October
Notes:
1. Industry ratios have been roughly constant for the past four years.
2. Inventory turnover, total assets turnover and fixed assets turnover are based on the year-end
balance sheet figures.
Required:
(a) The financial ratios for ABC Ltd for the past three years corresponding to industry ratios given above.
(b) Arrange the ratios calculated in (a) above in columnar form and summarise the strengths and weaknesses revealed by these ratios based on:
(i) Trends in the firm’s ratios
(ii) Comparison with industry averages.
(The summary should focus on the liquidity, profitability and turnover ratios).
Date posted: May 5, 2022. Answers (1)
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Date posted: May 5, 2022. Answers (1)
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Madawa Chemicals Ltd. is in the process of forecasting its financial needs for the coming year ending 31 October 2003. The company attained a turnover ofSh.300 million for the current year ended 31 October 2002.
The following are the summarized financial statements of the company for the year ended 31 October 2001:
From past experience, it has been disclosed that each additional Sh.1 of sales made by the company
requires, on average, a total investment in fixed assets, stocks and debtors of Sh.1.50. The Sh.1
additional sales also results in the generation of automatic financing of 40 cents as various creditors
spontaneously arise with the increase in sales.
The net profit margin after tax and the dividends payout ratio which apply for the year ended 31
October 2002 will also be relevant into the foreseeable future.
Required:
a) The amount of external finance that will be needed during the year ending 31 October
2003 if sales are expected to increase by 15% in the year.
b) The maximum expected sales growth that can be achieved in the year ending 31
October 2003 if only internally generated funds are used.
(c) The maximum growth in sales that can be achieved in the year ending 31 October 2003 if the
company wishes to maintain its current level of financial gearing.
(d) Briefly comment upon the weaknesses of the method of forecasting used above.
Date posted: May 5, 2022. Answers (1)
- The following information represents the financial position and financial results of AMETEX limited for the year ended 31 December 2002.(Solved)
The following information represents the financial position and financial results of AMETEX limited for the year ended 31 December 2002.
Additional Information
1. The company’ ordinary shares are selling at sh. 20 in the stock market
2. The company has a constant dividend payout of 10%
Required:
i) Acid test ratio
ii) Operating Ratio
iii) Return on total capital employed
iv) Price earnings ratio
v) Interest coverage ratio
vi) Total assets turnover
Determine the working capital cycle for the company.
Date posted: May 5, 2022. Answers (1)
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Pokea Cellphone Operators Ltd. started operations on 1 September 2002. The company raised the required equity capital of Sh.65million and debt at an annual rate of interest of 18% before commencing business. Given below are some statistics extracted from the books of the company in respect to the financial statements prepared to 31 August 2003
Required:
a) In respect of the year ended 31 August 2003, you are required to prepare the company’s:
i) Trading Profit and Loss account
ii) Balance Sheet
b) The following statistics have been provided with respect to the industry in which the company operates:
Acid test ratio 1.2:1
Return on equity 21%
Capital gearing ratio 36%
Required:
Comment on the performance of the company relative to these industry statistics
Date posted: May 5, 2022. Answers (1)