Reference no: EM132621532

Mask-It Ltd, a manufacturer of surgical masks and other medical consumables, has a before-tax cost of debt of 9.72% and a cost of equity of 15%. The firm maintains a target capital structure of 40% debt and 60% equity. Mask-It is considering the following investment opportunities for the 2021 financial year:

Investment       Cost (R)                Internal rate of return

A                       2,000,000            12%

B                       2,000,000               10%

C                         7,000,000              8%

D                         4,000,000               13%

E                          4,000, 000                9%

F                             6,000,000             15%

Mask-It reported a net profit of R10 million for the 2020 financial year. The company has four million ordinary shares outstanding, and has applied the residual approach to dividends in all prior years. The company's board of directors expects to continue with this dividend policy.

Assume a company tax rate of 28%.

Required:

Question 1: Calculate the dividend per share for the current financial year.

Question 2: Assume that the management of Mask-It expect to have R5 million in excess cash in 2021, due to the steep increase in the demand for surgical masks and other medical consumables. The management would like to distribute this excess cash to their shareholders. Advise the management of Mask-It about how they should go about distributing the excess cash to their shareholders.