Question 3 The following financial information relates to RG. Year Earnings per share in Net dividend...

 

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Question 3 The following financial information relates to RG. Year Earnings per share in Net dividend per share Share price in cents cents 20X1 42 17 252 20X2 46 18 184 20X3 51 20 255 20X4 20X5 55 62 22 275 25 372 A firm of market analysts which specializes in the industry in which RG operates has recently re-evaluated the company's future prospects. The analysts estimate that RG's earnings and dividends will grow at 25% for the next two years. Thereafter earnings are likely to increase at a lower annual rate of 10%. If this reduction in earnings growth occurs, the analysts consider that the dividend payout ratio will be increased to 50%. RG is all equity financed and has one million shares in issue. Required: Discuss whether the dividend policy being considered by the analysts would be appropriate for the company in the following two sets of circumstances: The company's shareholders are mainly financial institutions The company's shareholders are mainly small private investors Question 3 The following financial information relates to RG. Year Earnings per share in Net dividend per share Share price in cents cents 20X1 42 17 252 20X2 46 18 184 20X3 51 20 255 20X4 20X5 55 62 22 275 25 372 A firm of market analysts which specializes in the industry in which RG operates has recently re-evaluated the company's future prospects. The analysts estimate that RG's earnings and dividends will grow at 25% for the next two years. Thereafter earnings are likely to increase at a lower annual rate of 10%. If this reduction in earnings growth occurs, the analysts consider that the dividend payout ratio will be increased to 50%. RG is all equity financed and has one million shares in issue. Required: Discuss whether the dividend policy being considered by the analysts would be appropriate for the company in the following two sets of circumstances: The company's shareholders are mainly financial institutions The company's shareholders are mainly small private investors

Answer rating: 100% (QA)

In evaluating whether the dividend policy being considered by the analysts would be appropriate for RG we need to consider the circumstances of the companys shareholders which can be broadly categoriz... View the full answer