Refer to Appendix 1. Calculate for 2019:

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [2(a)(i) 1] dividend yield = dividend per share/share price × 100 and/or dividend per share = total dividend/number of shares (1 mark if no relevant working)
2. [2(a)(i) 1] dividend per share = 10/70 = ($)0.143
3. [2(a)(i) 1] dividend yield = 0.143/130 × 100
4. [2(a)(i) Answer] dividend yield = 0.11% or 0.1% or 0.1098% (3)
5. [2(a)(i) Answer] 0.11 (2)
6. [2(a)(i) Common error] Total dividend rather than dividend per share: 10/130 × 100 = 7.69(%) (relevant working required) (1)
7. [2(a)(i) Instruction] OFR applies
8. [2(a)(ii) 1] price earnings ratio = share price/EPS (1 mark if no relevant calculation)
9. [2(a)(ii) 1] EPS = profit for the year/total shares issued (1 mark if no relevant calculation)
10. [2(a)(ii) 1] EPS = 48/70
11. [2(a)(ii) 1] EPS = 48/70 = ($)0.69 or 0.7 or 0.686 (2)
12. [2(a)(ii) 1] Price earnings ratio = 130/0.69 (3)
13. [2(a)(ii) Answer] Accept range for PER between: 185.7 to 191.2 (years or times) (4)
14. [2(a)(ii) Answer] 185.7 to 191.2 $ or % (3)
15. [2(a)(ii) Common error] Earnings rather than earnings per share 130/48 = 2.71 (years or times) (2 marks if appropriate working shown)
16. [2(a)(ii) Common error] Incorrect profit figure used $60 m Answers within range 151 to 153 (years or times), e.g. 130/0.857 = 151.69 (3 marks appropriate working required)
17. [2(a)(ii) Instruction] OFR applies
18. [2(a)(iii) 1] ROCE = Operating profit/capital employed × 100 (1 mark if no relevant calculation)
19. [2(a)(iii) 1] Capital employed = 3 + 2.5 = 5.5($bn)
20. [2(a)(iii) 1] ROCE = 0.06/5.5 × 100
21. [2(a)(iii) Answer] ROCE = 1.09% (3)
22. [2(a)(iii) Answer] 1.09 (2)
23. [2(a)(iii) Common error] Profit for year used 0.048/5.5 × 100 = 0.87% (2)
24. [2(a)(iii) Common error] Following answers are given 2 marks if relevant working shown: 0.06/2.5 × 100 =2(%) 0.06/3 × 100 =2.4(%) 0.6/5.5 × 100 =10.9(%)
25. [2(a)(iii) Instruction] OFR applies
26. [2(b) Knowledge] Investors will be interested in the return on their investment
27. [2(b) Knowledge] Capital gains from increase in share price
28. [2(b) Knowledge] Dividend paid for ownership
29. [2(b) Knowledge] Understanding of relevant factors in decision
30. [2(b) Knowledge] Assessment of future profitability of AEV
31. [2(b) Knowledge] Current performance, e.g. profit of AEV, ROCE, PER, dividend yield
32. [2(b) Knowledge] Return of alternative investments
33. [2(b) Application] Price earnings ratio of 188 is very high and suggests that shareholders will take many years to gain a return on their investment but also suggests that market has confidence about future profitability of AEV
34. [2(b) Application] Low ROCE of only 1.09%
35. [2(b) Application] Dividend yield is very low -0.11%
36. [2(b) Application] Proposed increase in dividend to be paid in 2019 from 2018
37. [2(b) Application] Share price has risen by 30% in last year
38. [2(b) Application] Regulatory changes should benefit AEV and therefore its profits
39. [2(b) Application] Market capitalisation of AEV is high relative to assets of the business
40. [2(b) Application] AEV profits have been positive in last year
41. [2(b) Application] Current ratio has decreased and is quite low (below 1.5) so may suggest concern about liquidity
42. [2(b) Application] AEV has used significant cash over last year ($200 m)
43. [2(b) Application] Successful R & D to improve battery technology
44. [2(b) Application] Production delays and quality problems
45. [2(b) Analysis] AEV faces many difficulties in increasing profits and profitability – problems in operations to meet demand and need to increase finance to fund expansion. This means that investment is risky for potential investors
46. [2(b) Analysis] Akira committed to growth strategies. This will reduce dividends in the future as any profits likely to be retained for investment
47. [2(b) Analysis] Profitability is low suggesting lack of dividend payments
48. [2(b) Analysis] Markets are changing in AEV's favour. This will increase future potential for profits and therefore returns to investors
49. [2(b) Evaluation] Justification of most important factor
50. [2(b) Evaluation] This is a risky investment as AEV profits are low and returns are long term
51. [2(b) Evaluation] Is the market capitalisation unrealistic and purely based on potential rather than actual performance?
52. [2(b) Evaluation] Dividend yield is very low: 0.11% – how does this compare with other investments?