You are the personal financial adviser of Solar Power Ltd (SPL), which has current assets of Rs. xxxxxx1 net fixed assets of Rs. 17,700,000 current liabilities of Rs. 4,580,000 and longterm debts of Rs. 5,890,000. SPL has two subsidiaries: Solar Energy Ltd and Solar Construction Ltd. Solar Energy Ltd (SEL) currently has the following capital structure: • Debt: Rs. 2,500,000 par value of the outstanding bond that pays annually a 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has a face value of Rs. 1,000 and will mature in 25 years. • Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay Rs. 7.50 dividend per share in the next financial year. The firm is maintaining a 3% annual growth rate in dividends, which is expected to continue indefinitely. • Preferred shares: 40 000 outstanding preferred shares with the face value of Rs. 100, paying a fixed dividend rate of 14%. The company tax rate is 30%. The net profit of Solar Construction Ltd (SCL) in the current year is Rs. 2,575, 000. The company is planning to launch a project that will require an investment of Rs. 745 000 next year. Today the company’s stock has a market value of Rs. 22/share. Solar Power Ltd has the current capital structure of 60% in equity and 40% in debt.

How much dividend SCL can pay its shareholders this year and what is the dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies?

Answer rating: 100% (QA)

Dividend payout ratio Dividends paid Net profit Divide... View the full answer