Financial Management, Financial Accounting

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QUESTION 4:

Spanking Clean (Ltd) operate a number of car washes and auto valet services. The company has experienced a reasonable trading year. They are deciding whether to pay out R248 000 in accumulated cash in the form of a dividend to shareholders or embark on a share repurchase campaign. Current earnings are R7.20 per share and the share sells for R80.

Their abbreviated balance sheet before paying out the dividend is as follows:


Assets



Equity & Liabilities




Tangible assets

400

000

Equity

620

000


Inventories

40

000

Debt

180

000


Receivables

60

000








Bank/cash

300

000








Total

800

000

_ Total

800

000


Required:

4.1 Calculate the number of shares in issue if the company where to pay the dividend.

4.2 Calculate the number of shares in issue if the company where to repurchase its shares.

4.3 Spanking Clean (Ltd) is deciding whether to pay out a cash dividend or not.

Discuss the option of Dividend Reinvestment Plans and outline the benefits to the company and its shareholders.

4.4 Calculate the dividends per share (for the first alternative, i.e. pay the dividend)

4.5 Determine the net asset value of the firm should the company not exercise the option to repurchase its shares.

4.6 Determine the new share price, EPS and price-earnings ratio under both alternatives. (ie. pay the dividend or repurchase the shares).

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