(a) Refer to Table 3. Calculate the 2020:

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2021). The mark or mark type is shown in brackets.

1. [1] (a)(i) Dividend yield ratio = Dividend per share / current share price × 100 (1 if no relevant calculation)
2. [1] (a)(i) 1.45 / 11.00 × 100 (1)
3. [2] (a)(i) = 13.18% OR 13.2% (2)
4. [1] (a)(i) Wrong year 2019 = 1.50 / 12.00 = 12.5 % (1)
5. [1] (a)(i) 0.13 (1)
6. [1] (a)(i) Answer of just 13% with no working (1)
7. [1] (a)(ii) Dividend cover ratio = Profit for year after tax and interest / annual dividends (1 if no relevant calculation)
8. [2] (a)(ii) $5.9 million / $3.4 million (2)
9. [3] (a)(ii) = 1.735 OR 1.74 OR 1.7 OR 1.73 (times) (3)
10. [2] (a)(ii) Wrong year 2019 = 4.8 / 3.5 = 1.37 times (2)
11. [2] (a)(ii) If using operating profit then 6.9 / 3.4 = 2.02 (2)
12. [1] (a)(iii) ROCE = Operating profit / capital employed × 100 (1 if no relevant calculation)
13. [2] (a)(iii) 6.9 / 25 × 100 (2)
14. [2] (a)(iii) 0.276 (2)
15. [3] (a)(iii) = 27.6% OR 28% (3)
16. [2] (a)(iii) Wrong year 2019 = 6.3 / 24 × 100 26.25 % (2)
17. [2] (a)(iii) Net profit = 6.9/25 × 100 = 23.6% (2)
18. [Knowledge] (b) Knowledge of plc rights issue, for example: discounted price may be offered to existing shareholders or they may be given first refusal to purchase
19. [Knowledge] (b) this is equity capital
20. [Knowledge] (b) Dividend yield ratio shows rate of return to shareholders at current market share price
21. [Knowledge] (b) Dividend cover ratio shows the number of times the ordinary share dividend can be paid out of annual profit after interest and tax
22. [Knowledge] (b) ROCE is the primary profitability ratio and measures how well a business is generating profit from its investment
23. [Knowledge] (b) Knowledge of other relevant factors to the decision: trend in share price
24. [Knowledge] (b) dividend paid
25. [Knowledge] (b) alternative investment opportunities
26. [Knowledge] (b) gearing
27. [Application] (b) Comparison of figures from Table 3. Use of results and comparison between years
28. [Application] (b) ROCE 2019 = 6.3 / 24 × 100 = 26.25%
29. [Application] (b) ROCE 2020 = 6.9 / 25×100 = 27.6%
30. [Application] (b) Profit margins: 2019 = 29.3 %, 2020 = 29.36%
31. [Application] (b) Increase in dividend yield from 12.5% to 13.2%
32. [Application] (b) Increase in dividend cover ratio from 1.37 times to 1.735 times
33. [Application] (b) Gearing would be: 2019 = 41.67 %, 2020 = 40 % – low gearing
34. [Application] (b) Reference to ready meals project for which the finance is needed
35. [Application] (b) Demand for ready meals in Asia is growing rapidly
36. [Application] (b) Positive focus group tasting sessions
37. [Application] (b) Cole family currently own 55% of shares
38. [Application] (b) Investment appraisal suggests that the project is profitable: ARR is 15.3%
39. [Application] (b) Net return is $1.15 m over 5 years
40. [Application] (b) NPV is $0.6995 m
41. [Application] (b) Payback is 3 years 1 month
42. [Analysis] (b) Impact on existing share price: a rights issue might drive down the share price if there is low demand for the shares. This would deter shareholders from wishing to purchase additional shares.
43. [Analysis] (b) Share price has fallen in 2020 which could be a sign of less confidence and therefore deter shareholders from purchasing shares.
44. [Analysis] (b) Dividend yield ratio has increased, better returns, so encouraging purchase of shares.
45. [Analysis] (b) Dividend cover ratio has increased so company better able to pay returns and potentially invest in new projects. This suggests that buying shares may be relatively safe.
46. [Analysis] (b) Operating profit margin is stable and almost 30 %. This will encourage shareholders to have confidence in purchase of shares as WSC is producing good returns.
47. [Analysis] (b) Cole family currently have a controlling interest in WSC. A rights issue may reduce their control of the business and therefore they may be against the share issue due to dilution of control.
48. [Analysis] (b) Gearing is low suggesting that this is a relatively low risk business. This might encourage shareholders to buy shares.
49. [Evaluation] (b) Evaluation should contain a decision of whether or not to proceed with the ready meals project.
50. [Evaluation] (b) Depends on whether WSC can agree with supermarkets to distribute and sell the ready meals through them.
51. [Evaluation] (b) Depends on whether WSC can afford (or raise) the $1.5 m initial cost.
52. [Evaluation] (b) Depends on the accuracy of the investment appraisal data.
53. [Evaluation] (b) Depends on whether WSC can successfully create a coordinated marketing strategy.
54. [Evaluation] (b) Depends on any other option WSC could choose instead, e.g. other food products.
55. [Evaluation] (b) The importance to the Cole family of retaining control of WSC.
56. [Evaluation] (b) Interest rates/returns available from alternative investment options.
57. [Evaluation] (b) The level of discount offered to shareholders.
58. [Evaluation] (b) Whether shareholders have a long term interest in the success of the business or whether they just want short term gain.
59. [Evaluation] (b) Payment of dividends is not guaranteed if WSC wish to retain more profit for expansion options.
60. [Evaluation] (b) Accuracy of investment appraisal data?
61. [Evaluation] (b) Other external factors such as the economic environment.