Determining the level of the next dividend

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Reference no: EM132199838

Question -

a) Outline the practical issues that a financial manager should take into account when determining the level of the next dividend that will be paid to shareholders. Your answer should include an explanation of both the Signalling Hypothesis and the Clientele Effect.

b) The Dividend Irrelevance Hypothesis proposes that dividend policy will not impact on value, as companies can replace retained earnings with newly raised equity capital. Describe and explain this proposal. Conclude your answer with a critical assessment of this proposal.

c) Hayden Company has just announced its annual dividend of €50,000. As there are 100,000 shares outstanding, this is equivalent to €0.50 per share. Current share value is €11.50. Indicate the size and timing of a price adjustment to reflect this dividend payment. You should assume no taxes. Consider the impact of this decision on an investor who holds 1000 shares. Compare the impact of this decision with a decision that the dividend is cancelled and that the €50,000 will be used to repurchase 0.5% of each shareholding.

Reference no: EM132199838

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