Question

August Ltd has equity capital amounting to N$350 million comprising ordinary share capital N$70million and retained earnings of N$280 million. The par value of a fully paid up share is N$10. August Ltd has a profit after tax for the year just ended of N$87.5 million. The current market price of the share is N$110 and the dividend ratio is 60%. Debt amounts to N$420 million. (iv) Dividend yield (v) Debt to equity ratio, and (vi) Dividend yield

Answer 1

Profit after tax = N$87.50 million
Dividend Ratio = 60%

Dividend = Profit after tax * Dividend Ratio
Dividend = N$87.50 million * 60%
Dividend = N$52.50 million

Share Capital = N$70 million
Retained Earnings = N$280 million

Number of shares outstanding = Share Capital / Par Value per share
Number of shares outstanding = N$70 million / N$10
Number of shares outstanding = 7 million

Dividend per share = Dividend / Number of shares outstanding
Dividend per share = N$52.50 million / 7 million
Dividend per share = N$7.50

Answer iv.

Dividend Yield = Dividend per share / Current price per share
Dividend Yield = N$7.50 / N$110
Dividend Yield = 6.82%

Answer v.

Debt to Equity Ratio = Debt / Equity
Debt to Equity Ratio = N$420 million / N$350 million
Debt to Equity Ratio = 1.20