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The following financial information relates to PHL Co, a listed company: + Year 2020 2019 2018 Profit before Interest and Tax (m) 34.6 33.2 32 Profit After Tax (m) 20.6 19.5 17.3 Dividends (m) 9.6 9.6 9.0 Equity - Market value (m) 1 108.4 104.4 100.0 PHL Co has 15 million ordinary shares in issue and has not issued any new shares in the period under review. The company is financed entirely by equity and is considering investing 20 41 million of new finance in order to expand existing business operations. This new finance could be either long-term debt finance, a new equity via a rights issue or from retained earnings. The rights issue price would be at a 15% discount to the current share price. Costs of 100,000 would have to be met from the cash raised, whether the new finance was equity or debt. The annual report of SZB Co states that the company has three financial objectives: Objective 1: To achieve growth in profit before interest and tax of 4% per year Objective 2: To achieve growth in earnings per share of 5-5% per year Objective 3: To achieve total shareholder return of 5% per year PHL has a cost of equity of 11%. Exam May-20/21 Question 11 a) Analyse and discuss the extent to which PHL Co has achieved each of its 3 stated objectives. (6 marks) b) With reference to PHLs shareholders, consider the different ways in which returns could be measured, and discuss their impact on PHL's objectives (4 marks) Question 12 a) Calculate the theoretical ex rights price per share for the proposed rights issue (3 marks) b) As PHL Co should invest in all available positive NPV projects, discuss the impact of Dividend irrelevancy theory and Residual theory in relation to the choice of funding methods (3 marks) Question 13 a) A director of PHL Co is concerned about the effect a falling retum per share will have on the market value or share price of PHL's shares despite the fact dividend paid have increased. Is he correct that the return is declining and what do the pattern of dividend payments signal? (5 marks) b) Explain the officient market hypothesis (4 marks) 1 Focus The following financial information relates to PHL Co, a listed company: + Year 2020 2019 2018 Profit before Interest and Tax (m) 34.6 33.2 32 Profit After Tax (m) 20.6 19.5 17.3 Dividends (m) 9.6 9.6 9.0 Equity - Market value (m) 1 108.4 104.4 100.0 PHL Co has 15 million ordinary shares in issue and has not issued any new shares in the period under review. The company is financed entirely by equity and is considering investing 20 41 million of new finance in order to expand existing business operations. This new finance could be either long-term debt finance, a new equity via a rights issue or from retained earnings. The rights issue price would be at a 15% discount to the current share price. Costs of 100,000 would have to be met from the cash raised, whether the new finance was equity or debt. The annual report of SZB Co states that the company has three financial objectives: Objective 1: To achieve growth in profit before interest and tax of 4% per year Objective 2: To achieve growth in earnings per share of 5-5% per year Objective 3: To achieve total shareholder return of 5% per year PHL has a cost of equity of 11%. Exam May-20/21 Question 11 a) Analyse and discuss the extent to which PHL Co has achieved each of its 3 stated objectives. (6 marks) b) With reference to PHLs shareholders, consider the different ways in which returns could be measured, and discuss their impact on PHL's objectives (4 marks) Question 12 a) Calculate the theoretical ex rights price per share for the proposed rights issue (3 marks) b) As PHL Co should invest in all available positive NPV projects, discuss the impact of Dividend irrelevancy theory and Residual theory in relation to the choice of funding methods (3 marks) Question 13 a) A director of PHL Co is concerned about the effect a falling retum per share will have on the market value or share price of PHL's shares despite the fact dividend paid have increased. Is he correct that the return is declining and what do the pattern of dividend payments signal? (5 marks) b) Explain the officient market hypothesis (4 marks) 1 Focus

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