The management of Vikes Ltd. is in the process of evaluating the company's dividend policy. The...

Transcribed Image Text:

The management of Vikes Ltd. is in the process of evaluating the company's dividend policy. The following information is provided: 1. The company paid Ksh. 1.2 million as dividends in the last financial year. 2. The profit after tax for the last financial year was Ksh.3.6 million. 3. The company has not issued any preference shares 4. The earnings growth rate has been consistent at 10% per annum for the past ten years. 5. The expected profit after tax for the current financial year is Ksh.4.8 million. 6. The company anticipates investment opportunities worth Ksh.1.4 million in the current financial year. 7. The capital structure of the company consists of sixty per cent equity and forty per cent debt. Required: Determine the optimal total dividends for the current financial year if the company wishes to adopt each of the following independent dividend policies. i) Pure residual policy. (2 marks) ii) Constant payout ratio policy (2 marks) iii) Stable predictable dividend policy, the growth rate being equivalent to the earnings growth rate. (2 marks) The management of Vikes Ltd. is in the process of evaluating the company's dividend policy. The following information is provided: 1. The company paid Ksh. 1.2 million as dividends in the last financial year. 2. The profit after tax for the last financial year was Ksh.3.6 million. 3. The company has not issued any preference shares 4. The earnings growth rate has been consistent at 10% per annum for the past ten years. 5. The expected profit after tax for the current financial year is Ksh.4.8 million. 6. The company anticipates investment opportunities worth Ksh.1.4 million in the current financial year. 7. The capital structure of the company consists of sixty per cent equity and forty per cent debt. Required: Determine the optimal total dividends for the current financial year if the company wishes to adopt each of the following independent dividend policies. i) Pure residual policy. (2 marks) ii) Constant payout ratio policy (2 marks) iii) Stable predictable dividend policy, the growth rate being equivalent to the earnings growth rate. (2 marks)

Answer rating: 100% (QA)

The detailed answer for the above question is provided below i Pure Residual Policy The optimal tota... View the full answer