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Homework answers / question archive / Conifers Ltd, a tree relocation company, follows a stable plus special dividend policy
Conifers Ltd, a tree relocation company, follows a stable plus special dividend policy. The company recently (2020) had earnings available to common shareholders of R500m on sales of R2b and has 250m shares outstanding. The company maintains a stable pay-out ratio of 5% and issues special dividends whenever its net profit margin exceeds 10%. Special dividends amount to all profits exceeding 50% of the amount after the stable dividend had been deducted.
Required:
Determine the total dividend that Conifers Ltd will pay per share in 2020.
Question 2.3
Rabulani Ltd recently had better than expected earnings which it does not expect to achieve again.
The company wants to distribute 90% of the earnings available to common shareholders for the year through a share repurchase at the current share price, instead of a paying out a dividend. The buy-back will be offset against retained earnings, which comprises nearly the entirety of the company's equity. The company currently has 10 000 000 shares outstanding trading at R5 each, R60 000 000 in total assets (including the earnings available to common shareholders for the year), R50 000 000 in total liabilities and earnings available to common shareholders is R10 000 000.
Required:
Determine how many shares will be bought back and how the share buy-back would influence the number of shares outstanding in the market. Also discuss the effect the buy-back will have on remaining shareholders if the future earnings available to common shareholders are expected to be a constant R10 000 000 per year.
