Question 4.2 (10 marks) Rabulani Ltd recently had better than expected earnings which it does...
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Question 4.2 (10 marks) Rabulani Ltd recently had better than expected earnings which it does not expect to achieve again The company wants to distribute 80% of its earnings available to common shareholders for the year through a share repurchase at the current share price, instead of paying a dividend. The buy-back will be offset against retained earnings, which comprises the bulk of the company's equity. The company currently has 10 000 000 shares outstanding trading at R5 each, R60 000 000 in total assets (including the earnings available to common shareholders for the year), R20 000 000 in total liabilities and the earnings available to common shareholders are R5 000 000. None of the shares of the company's largest shareholder, which holds 4 600 000 shares, will be bought back. Required: Determine how many shares will be bought back and how the share buy-back will influence the number of shares outstanding in the market. Also, determine how the control of the company may be affected and discuss the effect the buy-back will have on remaining shareholders if the future earnings available to common shareholders are expected to be a constant R8 000 000 per year
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