(b)

(i) Appendices 1 and 1.1
Operating profit 1
Interest paid 1
Tax paid for normal activities 1
Investment in working capital 1
Investment in additional non-current assets 1
Correct treatment of depreciation 1
Cash flows remitted from Pontac Co 2
Additional tax payable 1
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9
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(ii) Appendix 2
Amount received based on forward contracts 1
Correctly identifying long contracts and purchasing call options 1
Expected futures price based on linear narrowing of basis 1
Amount received based on futures contracts 1
Recognition of small over-hedge when using futures contracts 1
Option contracts or futures contracts purchased 1
Premium paid in dollars 1
Amount received based on options contracts 2
1–2 marks for each well-discussed point 4
Reasonable recommendation 1
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14
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(iii) Appendix 3 and project assessment
Estimate of dividend growth rate (prior to project undertaken) 2
Estimate of corporate value (prior to project undertaken) 1
Annual dividend per share after transfer of funds to project 2
Estimate of value after project is undertaken 2
Concluding comments on project assessment 1
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8
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(iv) Discussion of issues
Limitations of method used 1–2
Signalling impact of change in dividend policy 1–2
Clientele impact of change in dividend policy 2–3
Rationale for not considering debt or equity 3–4
Other relevant discussion points 2–3
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Max 9
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Professional marks for part (b)
Structure and presentation of the discussion paper 3
Clearly highlighting/emphasising areas for further discussion/detailed summary 1
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4