Roads Ltd is a construction company that builds roads and related civil projects. The company recently faced
Question:
Roads Ltd is a construction company that builds roads and related civil projects. The company recently faced increased calls from investors to pay dividends due to the perceived lack of new profitable projects in a low growth economy. The company has, in spite of weak business sentiment, maintained a stable profit margin. At a recent meeting, the board resolved to adopt a residual approach to dividend payments. You have been tasked with recommending the dividend that should be paid at the end of the 2018 financial year.
A company expects to have earnings available to common shareholders of R 60 million and it will have five million shares in issue at the end of the financial year. Its project schedule for the next financial year is as follows:
The company has a WACC of 8% and a target debt ratio of 60%.
Required:
Determine the amount of earnings available to common shareholders that could be paid out as a divided according to the residual policy. Create a brief report for the board showing the projects that would be undertaken and also determine the dividend that could be paid.