Ican 2026 Financial Management Question 2

Feli Plc. operates a low-cost road transportation business and the company is listed. By comparison to its major competitors, Feli Plc is relatively small, but it has expanded significantly in recent years. The shares are held mainly by large financial institutions. The following are extracts from Feli Plc.’s budgeted statement of financial position at May 31, 2025: Ordinary shares of ₦1 100 Reserves 50 9% bonds 2028 (at nominal value) 200 Dividends have grown in the past at 3% a year, resulting in an expected dividend of ₦1 per share to be declared on May 31, 2025. (Assume for simplicity that the dividend will also be paid on this date). Due to expansion, dividends are expected to grow at 4% a year from 1 June, 2025 for the foreseeable future. The price per share is currently ₦10.40 ex div and this is not expected to change before May 31, 2025. The existing bonds are due to be redeemed at par on May 31, 2025. The market value of these bonds at 1 June, 2025 is expected to be N100.84 (ex interest) per ₦100 nominal. Interest is payable annually in arrears on May 31 and is allowable for tax purposes. The tax rate for the foreseeable future is 30%. Assume taxation is payable at the end of the year in which the taxable profits arise. New finance The company has now decided to purchase three additional vehicles at a cost of ₦10 million each. The Board has decided that the new vehicles will be financed in full by an 8% bank loan on June 1, 2025.