Answer to Question #94914 in Economics for Lusanda Mrasi

Question

Memory makers CC are deciding whether to pay out R90 000 in accumulated cash in the form of an extra the form of an extra dividend to shareholders or embark on a share repurchase scheme. Current Profits are R3.40 per share and their shares currently trade for R35. Their abbreviated balance sheet before paying out the dividend is as follows: Equity 350 000 Bank/Cash 130 00 Debt 120 000 other assets 340 000 470 000 470 000 Evaluate each alternative (i.e.: pay the dividend or repurchase the shares) by: 4.1 Calculating the number of shares in issue. (3) 4.2 The dividends per share (only for the first alternative, i.e pay the dividend). (3) 4.3 calculate the new share price. (6) 4.4 calculate EPS (4) 4.5 Calculate the price-earnings ratio (4) QUESTION 5 (15) 5.1 Explain three (3) reasons why liquidity or holding onto cash is important (6) 5.2 discuss the measures a business can put in place to try to rectify a poor payment culture by its debtor’s. (9)

Answer 1

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