Question 2: Capital structure and dividend policy. 25 marks

The following information relates to two companies which trade in a Modigliani and Miller world:

Sanlam Santam

Cost of equity	20%	18%
Cost of debt	12%	-
Dividends	200 000	432 000
Interest	150 000	-
Shares	1000	1000

Suppose Sanlam ltd wishes to finance a major restructuring project whose total cost is N$75 Million. The company follows a residual policy on dividends. Earnings for the coming year are expected to be N$60 Million and the company maintains a debt to equity ratio of 0.5 (50%). An extract from the statements of financial position is shownbelow:

Statement of Financial position extract: 2018 2017

Equity: Ordinary shares of N$0.50 each N$5 000 000 N$5 000 000

Calculate the following:

I).dividend per share;

ii).the value of additional debt, and

iii).ordinary share capital to be raised in order to finance the restructuring project. (13 marks)