Problem
CDL Ltd is deciding whether to pay out R100 000 in excess cash in the form of an extra dividend or implement a share repurchase. Net profit after tax is R155 000 and the share sells for R10. Their summarised statement of Financial Position prior to the dividend payment is as follows:
|
Assets
|
Equity and Liabilities
|
|
Tangible assets
|
340 000
|
Equity
|
500 000
|
|
Inventories
|
50 000
|
Debt
|
100 000
|
|
Receivables
|
70 000
|
|
|
|
Bank/cash
|
14 000
|
|
|
|
Total
|
600 000
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Total
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600 000
|
Evaluate each alternative (i.e. pay the dividend or repurchase the shares) by calculating the:
a) Number of shares in issue.
b) Dividends per shares (only for the first alternative, i.e. pay the dividend).
c) New share price.
d) Earnings per share.
e) Price-earnings ratio.