QUESTION FOUR
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:
Financial Year Profits after Tax Ordinary Shares
Ordinary
End
(K'000)
Dividends (K'000)
in Issue (K'000)
2013
1,140
480
1,500
2012
990
550
2,200
2011
1,232
1,056
2,200
2010
2,520
384
3,200
2009
2,800
1,360
3,400
Required:
A. Discuss the dividend policy followed by Durant Limited over the past five years.
(5 Marks)
B. Evaluate the views expressed by the Chairperson of the Board and the CEO and
discuss the key points to be taken into account when establishing an appropriate
dividend policy for a business.
(20 Marks)
[TOTAL: 25 MARKS]
Page 5 of 13