At the end of the fiscal year ending 31^st January 2020, Invest Co Ltd reported common equity of Kshs 649 million on its statement of financial position with Kshs 490 million invested in financial assets (in the form of cash equivalent and short term investments) and no financing debt. For the fiscal year ending 31^st January 2021, the company reported Kshs 74 million in comprehensive income of which 11 million was after tax earnings on the financial assets. This month Invest Co Ltd is distributing Kshs 340 million of financial assets to the shareholders in the form of special dividends.

Required

Holding all else constant, what would be Invest Co Ltd, ROCE after the payout of the Kshs 340 million as special dividends.                                                  

Would you expect the pay-out of the special dividends to increase or decrease earnings in the future? (Explain)                                                               

What effect would you expect the pay-out of the special dividends to have on the value of Invest Co Ltd shares?

Answer rating: 100% (QA)

Invest Co Ltds ROCE after Special Dividend Payout and Future Earnings Share Value Impact 1 ROCE Return on Common Equity after Special Dividend Payout Current Equity Kshs 649 million Financial Assets P... View the full answer