BUSF_A01.qxd

Suggested answers to selected problem questions

l Informational effect of dividends. It is argued by some people that businesses use dividend

payment levels as a device to signal information to the outside world. It is claimed

that high dividend payments signal confidence in the future of the business whereas

small payments signal a lack of confidence. If it is true that small dividends will be

interpreted by the market as a sign of an uncertain future, then the fact that Images plc

is paying a smaller than usual dividend could have an adverse effect on the wealth of its

shareholders.

13.1 Dixon plc

(a)

where Eis the economic order quantity, Ais the annual usage, Cis the cost of placing

each order and His the annual holding cost of one unit. This gives:

Therefore, orders should be placed of 1,238 or 1,239 units, but since the round figure

of 1,250 is not too far away, orders of that size would probably be placed.

(b)During the one-week lead time (1/52) ×23,000 =442 units would be used, so the order

must be placed when the inventories level is no lower than 442 units if ‘stockouts’ are to

be avoided.

13.3 Arcadia Ltd

Cash budget for six months to June

January February March April May June

£ £ ££££

Receipts from trade receivables 2,800 3,200 3,200 4,000 4,800 5,200

Receipts from cash sales 4,800 6,000 7,200 7,800 8,400 9,600

(A) 7,600 9,200 10,400 11,800 13,200 14,800

Outflows

Payments to trade payables 4,000 4,800 4,800 5,600 6,000 6,000

Wages etc. 3,000 3,600 3,600 4,200 4,500 4,500

Advertising 1,000 – – 1,500 – –

Salaries etc.: 80% 1,280 1,280 1,280 1,280 1,600 1,600

20% 280 320 320 320 320 400

Non-current assets acquired – – 2,000 2,000 2,000 –

Dividend – – – 600 – –

(B) 9,560 10,000 12,000 15,500 14,420 12,500

Surplus/deficit for the

month (A −B) (1,960) (800) (1,600) (3,700) (1,220) 2,300

(Cumulative surplus/deficit) 5,540 4,740 3,140 (560) (1,780) 520

= ,. 1 238 3 units

= ,,1 533 333

E , £

£.

=^2 ××23 000^50

150

E AC

H

=^2

Chapter 13

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