QUESTION $1(38$ marks$)$ Food Gallore Ltd $($Food Gallore$)$ is a large food wholesaler and retailer which sells various food brands. The entity has a $30$ April financial yearend and is listed on the Johannesburg Stock Exchange $($JSE$).$ Following are extracts from Food Gallore$$s preliminary $2025$ annual financial statements: Statement of Profit and Loss and Other Comprehensive Income for the year ended $30$ April $20252025$ Rands Earnings after interest before taxation $18626000$ Less: Income tax expense $(4870000)$ Earning after interest and taxation $13756000$ Statement of Financial Position as at $30$ April $20252025$ Rands Equity $$ Share capital $(30000000$ ordinary shares issued; $90000000$ ordinary shares authorised$)60000000$ Retained earnings $352750000$ Total equity $412750000$ You may assume these preliminary figures to be correct. Additional information: $$ Each Food Gallore share is currently trading at R$1\mathrm{.}50$ per share on the JSE. $$ Food Gallore$$s targeted capital structure is a debt to equity ratio of $65\%.$ Food Gallore will invest R$12700000$ into a new warehouse in the $2026$ financial year. $$ Ignore Value Added Tax $($VAT$).$ REQUIRED: $1\mathrm{.}1.$ Calculate Food Gallore Ltd$$s dividend payout ratio. Assume that the entity follows a residual value approach to dividends, and that its financing of new asset investments is in line with its current capital structure. $(9$ marks$)1\mathrm{.}2.$ Assume that Food Gallore Ltd has decided to distribute R$4800000$ to the shareholders $$ either by declaring it as a dividend $($Option $1)$ or through a share buy$-$back $($Option $2).$ Calculate what the effect of both options will be respectively, on the following figures: $1\mathrm{.}2\mathrm{.}1.$ Earnings per share $($EPS$)(7$ marks$)1\mathrm{.}2\mathrm{.}2.$ Share price per share$(7$ marks$)1\mathrm{.}2\mathrm{.}3.$ Net Asset Value $($NAV$)$ per share$(8$ marks$)$ Note: For Questions $1\mathrm{.}2\mathrm{.}1.1\mathrm{.}2\mathrm{.}3.$ you may assume that the R$4800000$ distribution has not yet been accounted for in the financial statements provided in the scenario. $1\mathrm{.}3.$ Assume that Food Gallore Ltd has decided to pursue Option $2($refer to question $1\mathrm{.}2).$ Demonstrate with calculations how the current P$/$E ratio of Food Gallore Ltd will be affected. Supplement your answer by interpreting the above ratios. Calculation $4$ marks Interpretation $2$ marks Communication Skills $$ Clarity of expression $1$ mark $(7$ marks$)$