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QUESTION THREE $[30]$

Glass Ltd is a company that manufactures glassware. The shareholders of the company have been disgruntled by the lack of dividends paid by the company as it conflicts with the company dividend policy. It has always been a high dividend payout company however in recent times dividends have been erratic.

Glass has made profits of R$225000$ in the current financial year ending $31$ December $2023$ and is considering the following options:

$1.$

Pay out the full R$225000$ as a cash dividend.

$2.$

Implement a share buyback$/$repurchase for R$225000.$

As the accountant for Glass Ltd you have established the following:

$$

EPS $-$ R$3,90$

$$

Market Value of share $-$ R$40$

You have also reviewed the following extracts of the balance sheet prior to the dividend pay$-$out:

$$

Share capital $($market value$)$ R$620000$

$$

Share premium $$ R$400000$

$$

Retained earnings $$ R$120000$

$$

Non$-$current assets $$ R$1500000$

$$

Non$-$current liabilities $$ R$2000000$

$$

Current assets $$ R$250000$

$$

Current liabilities $$ R$275000$

Required:

$3\mathrm{.}1$ Based on the impact of the price$/$earnings ratio advise Glass Ltd which option would be preferable for the company? Please support your answer with explanations. $(21)$

$3\mathrm{.}2$ If the analysis was based on the impact of price per share which option would you advise? Please support your answer with an explanation. $(2)$

$3\mathrm{.}3$ Based on the information given above:

$3\mathrm{.}3\mathrm{.}1$ What type of shareholder$/$investor do you think Glass Ltd attracts and what are the implications for such investors? $(4)$

$3\mathrm{.}3\mathrm{.}2$ Are there any concerns an investor would have in investing in Glass Ltd presently?

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