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Capital market offers an interest rate

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Assume that Jack Black has a sole income from Wildcat Ltd in which he owns 10% of the ordinary share capital.

In its financial year 2016-17 just ended, Wildcat Ltd reported net profits after tax of $500,000, and announced its net profits after tax expectation for the next financial year, 2017-18, to be 20% higher than this year's figure. The company operates with a dividend payout ratio of 60%, which it plans to continue, and will pay the annual dividend for 2016-17 in mid-May 2017, and the dividend for 2017-18 in mid-May, 2018.

In mid-May, 2017, Jack wishes to spend $40,000. How much can he consume in mid-May, 2018 if the capital market offers an interest rate of 8% per year?

Reference no: EM131504422

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