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Assume that Dorothy Pix has a sole income from OzElectronics Ltd in which she owns 15% of the ordinary share capital. Currently, she has no savings. In early December, 2018, Oz Electronics Ltd reported net profits after tax of S600,000 for the last accounting year, 2017-18 (1 October, 2017 to 30 September, 2018), and announced it expects net profits after tax for the current accounting year, 2018-19, to be 25% higher than last financial years figure. The company has a dividend payout ratio of 60%, which it plans to continue, and will pay the annual dividend for 2017-18 in late- January, 2019, and the dividend for 2018-19 in late-January, 2020 In late-January, 2019, Dorothy wishes to spend S84,000, which will include the cost of a new car. How much can she consume in late-January, 2020 if the capital market offers an interest rate of 8% per year?

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2017-18 2018-19 paid in late Jan paid in late Jan 2019 2020 profits dividend payout % total dividend paid by Oz Electronics Dorothy Pixs share dividend received by Dorothy Pix $ 600,000 $ $ 54,000 $ 750,000 60% $360,000 15% 60% 450,000 15% 67,500 dividend received by Dorothy Pix in late Jan 2019 $ otal amount required by her in late Jan 2019 amount to be borrowed by her from capital market $ interest on borrowed amount from late Jan 2019 to late Jan 2020 54,000 84,000 30,000 ($84,000 $54,000) 2,400 ($30,000 * 8% * 1) dividend received by Dorothy Pix in late Jan 2020 $ 67,500 interest to be paid on amount borrowed in late Jan 2019 2,400 amount available for consumption in late Jan 2020 $ 65,100 hence, Dorothy Pix can consume $ 65,100 in late January, 2020

hence, Dorothy Pix can consume $65,100 in late January, 2020

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