CIMA Exam CIMAPRA19-F03-1 Topic 5 Question 104 Discussion

Awholly equity financedcompany has the following objectives:

1. Increase inprofit before interest and tax by at least 10% per year.

2. Maintain a dividend payoutratio of40% of earningsper year.

Relevant data:

* There are 2 million shares in issue.

* Profit before interest and tax in the last financial year was$5million.

* The corporateincometax rateis30%.

At the beginning of the current financial year, the company raised long term debt of $2 million at 10% interesteachyear.

Calculate the dividend per share that will be announced this year assuming the company achieves its objective of increasing profit before interest and tax by 10%.