Q2(b)

QUESTION 2 [TOTAL MARKS:20] Q 2(a) [6 Marks] Burke Farm Machinery Ltd (BFML) is a business that has grown rapidly over the past number of years and has reached a point where a significant amount of finance may be needed for future growth. The board of directors are investigating applying for a listing on the Irish Enterprise Exchange (EX) in the hope of raising the necessary capital. Key information concerning the business for the past five years is as follows: Year 2014 2015 2016 2017 2018 Profits After Interest & Tax E'000 23.000 1,850 2.640 6.280 5,690 Dividend E'000 9,040 480 1,090 960 740 No, of shares *000 1.250 1,250 2.200 2200 2.500 The directors have to date, never taken a systematic approach to the issuance of dividends to the shareholders of the company. However, the directors now realise that if successful in launching the company onto the stock exchange then they must adopt a more structured approach to its dividends policies. Required: Briefly discuss the dividend policy adopted by BFML in the past five years. ACCT08014 - Financial Management Summer Examinations 2017/2018 Page 5 of 16 Q 2(b) [6 Marks) Briefly suggest other approaches that the directors of BFML could adopt regarding dividends pay-out policies. Q2(c) [8 Marks] Briefly discuss how Miller and Modigliani's theory that the value of a company depends on its investment decision and not on its dividend or financing decisions, might influence the directors of BFML [End of Question 2] QUESTION 2 [TOTAL MARKS:20] Q 2(a) [6 Marks] Burke Farm Machinery Ltd (BFML) is a business that has grown rapidly over the past number of years and has reached a point where a significant amount of finance may be needed for future growth. The board of directors are investigating applying for a listing on the Irish Enterprise Exchange (EX) in the hope of raising the necessary capital. Key information concerning the business for the past five years is as follows: Year 2014 2015 2016 2017 2018 Profits After Interest & Tax E'000 23.000 1,850 2.640 6.280 5,690 Dividend E'000 9,040 480 1,090 960 740 No, of shares *000 1.250 1,250 2.200 2200 2.500 The directors have to date, never taken a systematic approach to the issuance of dividends to the shareholders of the company. However, the directors now realise that if successful in launching the company onto the stock exchange then they must adopt a more structured approach to its dividends policies. Required: Briefly discuss the dividend policy adopted by BFML in the past five years. ACCT08014 - Financial Management Summer Examinations 2017/2018 Page 5 of 16 Q 2(b) [6 Marks) Briefly suggest other approaches that the directors of BFML could adopt regarding dividends pay-out policies. Q2(c) [8 Marks] Briefly discuss how Miller and Modigliani's theory that the value of a company depends on its investment decision and not on its dividend or financing decisions, might influence the directors of BFML [End of Question 2]