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Development of financial strategy

Next year:

No project:

Next year's profit is forecast to stay at GBP 10 million if the project is not
undertaken, so EPS will be GBP 10m/10m = GBP 1.

DPS is expected to stay at 30% of this, so will be GBP 0.30.

With project:

Next year's profit is forecast to grow by 15% (to GBP 11.5 million) if the project
is undertaken, so EPS will be GBP 11.5m/10m = GBP 1.15.

We are told that the dividend cut is expected to be for only one year, so DPS
next year will revert to 30% of EPS, i.e. 30% × GBP 1.15 = GBP 0.345.

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