QUESTION FOUR $(4)$

Durant Limited is a construction company based in Malawi and has presence in almost seven countries in sub$-$Saharan Africa. Because of the aggressive government construction programs in the region, the company has seen an increase in its orders and has reached a point where a significant amount of finance is needed to source future

growth. The board recently decided to list the business on the Johannesburg Stock Exchange and is currently examining the full implications of this decision on its operations.

The Board Chairperson has argued that a stock exchange listing may alter the way in which the business views their dividend policy. However, the CEO has insisted that the dividend policy is unimportant as the pattern of dividend has no effect on shareholder

wealth. Key data on the dividend policy adopted is as follows:

b$)$ Energy Limited's management, who have been issued with a substantial number of share options, are considering investing in a high risk project which offers potentially significant returns. News of this proposed project has been leaked to the market, the ordinary share price immediately rose but the price of the company's corporate bonds

fell sharply. Explain why this may happen.