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• If the debt is not properly applied to variable projects, it accumulates to become a drain on the country’s resources.
• Foreign debt can drain the country’s foreign exchange reserves hence adversely affecting the exchange rates.
• Excessive government borrowing leads to an increase in local interest rates where financial institutions increase their lending rates.
• If the debt is contracted recklessly, it quickly becomes a burden to the citizen.
• Sudden capitals in-flight and debt financing can lead to currency crisis, which causes uncertainty and instability for business and adds to inflationary pressures.
• Loss of control over economic decision making, which is economic dependence.
Kavungya answered the question on May 6, 2022 at 06:06
- Highlight six ways through which performance contracts have helped to restore trust and improved financial management in government departments.(Solved)
Highlight six ways through which performance contracts have helped to restore trust and improved financial management in government departments.
Date posted: May 6, 2022. Answers (1)
- In the context of the management and control of public finances in your country:
Explain the meaning of the term "budget cycle".(Solved)
In the context of the management and control of public finances in your country:
Explain the meaning of the term "budget cycle".
Date posted: May 6, 2022. Answers (1)
- Discuss three forms of corporate restructuring that may be adopted by public enterprises.(Solved)
Discuss three forms of corporate restructuring that may be adopted by public enterprises.
Date posted: May 6, 2022. Answers (1)
- Explain the concept of public enterprise restructuring.(Solved)
Explain the concept of public enterprise restructuring.
Date posted: May 6, 2022. Answers (1)
- The financial data given below shows the capital structure of Akabebi Company Limited.
The structure is considered optimum and the management would wish to maintain this...(Solved)
The financial data given below shows the capital structure of Akabebi Company Limited.
The structure is considered optimum and the management would wish to maintain this level.
Akabebi Company Limited intends to invest in a new project which is estimated to cost
Sh.16,800,000 with an expected net cash flow of Sh.3,000,000 per annum for 10 years. The
management has proposed to raise the required funds through the following means:
1. Issue 100 10% debentures at the current market value of Sh.5,000 per debenture.
2. Utilize 60% of the existing retained earnings.
3. Issue 10% Sh.20 preference shares at the current market price of Sh.25 per share
4. Issue ordinary shares at the current market price of Sh.45 per share. Floatation cost per share
is estimated to be 12% of the share value.
The company’s current dividend yield is 5% which is expected to continue in the near future.
Corporation tax rate is 30%.
Required:
a) Determine the current dividend per share.
b) Determine the number of ordinary shares to be issued.
c) Determine the marginal cost of capital for Akabebi Company Ltd based on the above information.
d) Evaluate whether it is viable to invest in the proposed project (Round off your answer for cost of capital to the nearest 1)
e) Explain clearly the sense in which depreciation is said to be a source of funds to business firms.
Date posted: May 5, 2022. Answers (1)
- State the circumstances under which it would be advantageous to lenders and to borrowers from the issue of:
(i) Debentures with a floating rate of interest.
(ii)...(Solved)
State the circumstances under which it would be advantageous to lenders and to borrowers from the issue of:
(i) Debentures with a floating rate of interest.
(ii) Zero-coupon bonds. (Ignore taxation)
Date posted: May 5, 2022. Answers (1)
- The following is the summarized Balance sheet of Kaka Kuona Ltd. as at 30 November 2003:(Solved)
The following is the summarized Balance sheet of Kaka Kuona Ltd. as at 30 November 2003:
Additional Information:
1. In the past Kaka Kuona ltd.’s earnings per share (EPS) averaged Sh.6 and the dividend payout
rate was 50% or Sh.3 per share. For the year ended 30 November 2003, the EPS declined to
Sh.2.50. Because it was felt that this decline was temporary, the annual dividend of Sh.3 per share
was maintained for the financial year ended 30 November 2003. As well as for the first six
months of the financial year ending 30 November 2004
2. Recent projections however have caused management to revise downwards the expected EPS. For
the financial ending 30 November 2004, the forecast of EPS has been reduced to Sh.2 per share
and for the financial year ending 30 November 2004, the forecast of EPS has been reduced to
Sh.2 per share and for the financial year ending 30 November 2005, adjusted to Sh2.20
3. Kaka Kuona Ltd. ‘s ordinary shares are currently selling in the market at Ss. 15 per share
The management of Kaka Kuona Ltd. is considering whether or not to retain the cash dividend of
Sh.3 per share for the next two financial years
Required:
a) Calculations to help determine whether it will be feasible to maintain dividends at Sh.3 Per share
for the next two financial years
b) Determine whether the company should replace the cash dividend with a bonus issue of one share
for every four ordinary shares
c) Explain the course of action that the management of Kaka Kuona Ltd should take in the light of
the declining projections in dividend payouts.
Date posted: May 5, 2022. Answers (1)
- Jambo Kenya Ltd. Has followed a policy of paying out a gradually increasing dividend per share over the past five years as shown below:(Solved)
Jambo Kenya Ltd. Has followed a policy of paying out a gradually increasing dividend per share over the past five years as shown below:
Date posted: May 5, 2022. Answers (1)
- Explain the factors that influence the dividend policy(Solved)
Explain the factors that influence the dividend policy
Date posted: May 5, 2022. Answers (1)
- Outline the reasons that may constrain a company from paying dividends to its shareholders at the end of a financial year.(Solved)
Outline the reasons that may constrain a company from paying dividends to its shareholders at the end of a financial year.
Date posted: May 5, 2022. Answers (1)
- PDS Ltd is a medium sized company quoted on the stock exchange. The company’s year-end is 31 December. The following data relate to the company’s...(Solved)
PDS Ltd is a medium sized company quoted on the stock exchange. The company’s year-end is 31 December. The following data relate to the company’s earnings per share (EPS) and dividend per share (DPS) for the last five years.
If the current dividend policy is maintained, the directors of PDS Ltd. expect that annual growth in earnings and dividend will be the same as the average growth in earnings over the past four years. PDS Ltd., which is wholly equity financed, is reluctant to obtain debt to finance its growth opportunities. The company is therefore considering a change in its dividend policy where 50% of its earnings will be retained to finance identified projects which are estimated to have an average post-tax
return of 15%.
The company's cost of capital is 12%.
Required;-
The share price of the company which might be expected by the market
(i) If the company does not announce the change of dividend policy.
(ii) If the company announces the change of dividend policy.
Date posted: May 5, 2022. Answers (1)
- Explain the arguments in favour of a stable dividend policy.(Solved)
Explain the arguments in favour of a stable dividend policy.
Date posted: May 5, 2022. Answers (1)
- MCC Enterprises Ltd. expects its earnings before interest and taxes (EBIT) to fluctuate with the economic environment as shown below. You are advised that the...(Solved)
MCC Enterprises Ltd. expects its earnings before interest and taxes (EBIT) to fluctuate with the economic environment as shown below. You are advised that the earnings distribution is expected to continue in perpetuity. The company has one million shares outstanding and no debt in the capital structure. The company pays all its earnings in dividends and shareholders require a
12% return. The company pays no taxes.
Date posted: May 5, 2022. Answers (1)
- Explain three ways in which a company could pay dividends to its shareholders.(Solved)
Explain three ways in which a company could pay dividends to its shareholders.
Date posted: May 5, 2022. Answers (1)
- Enumerate four ways in which the dividend decision affects the wealth maximization goal of a company quoted in the securities exchange of your country.(Solved)
Enumerate four ways in which the dividend decision affects the wealth maximization goal of a company quoted in the securities exchange of your country.
Date posted: May 5, 2022. Answers (1)
- Discuss the effect of the following concepts on the firm's dividend policy:
(i) Clientele effect
(ii) "Homemade" dividend.(Solved)
Discuss the effect of the following concepts on the firm's dividend policy:
(i) Clientele effect
(ii) "Homemade" dividend.
Date posted: May 5, 2022. Answers (1)
- Nazitum Ltd. has current earnings per share of sh. 4.00. The company’s dividend for the previous year was sh. 1.50 per share and it has...(Solved)
Nazitum Ltd. has current earnings per share of sh. 4.00. The company’s dividend for the previous year was sh. 1.50 per share and it has a target payout ratio of 0.60. The management of the company adjusts its dividend over two years.
Required:
The dividend per share for the current year.
Date posted: May 5, 2022. Answers (1)
- Davirex Ltd’s share has a nominal value of sh. 80. The company pays 10% of the nominal value of the share as dividend for the...(Solved)
Davirex Ltd’s share has a nominal value of sh. 80. The company pays 10% of the nominal value of the share as dividend for the year. The current market price of the share is sh. 160 with 15% earnings yield.
Required:
i. Earnings per share.
ii. Dividend cover.
iii. Price – earnings ratio.
Date posted: May 5, 2022. Answers (1)
- Outline four advantages of paying scrip dividends(Solved)
Outline four advantages of paying scrip dividends
Date posted: May 5, 2022. Answers (1)
- Highlight four assumptions necessary for the dividend irrelevance theory to hold.(Solved)
Highlight four assumptions necessary for the dividend irrelevance theory to hold.
Date posted: May 5, 2022. Answers (1)