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Question 9.RQ.3: Is it really important for a business to try to meet the nee...

Is it really important for a business to try to meet the needs of different types of shareholders when formulating its dividend policy?

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The type of distribution policy adopted may not be critical because of the clientele effect. The particular distribution policy will attract a certain type of investor depending on his or her cash needs and taxation position. Thus, investors who rely on dividend income to meet living expenses may prefer a high payout policy whereas investors with high marginal tax rates may prefer a low (or zero) payout policy.

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Question: 9.1

Merton plc has the following statement of financial position as at 31 December Year 5:Suppose that the business decides to distribute all the cash available (that is, £30,000) to shareholders by making a 100p dividend per share. This will result in a fall in the value of assets to £60,000 (that is, ...

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Question: 9.Act.4

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Question: 9.2

Chang plc has 1 million shares in issue and surplus cash of £2 million, which is to be distributed to shareholders. Following this distribution, earnings are expected to be £1 million per year and the price/earnings ratio is expected to be 8 times. The distribution will be made by either: (i) a ...

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Question: 9.S-AQ.1

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Question: 9.RQ.1

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Question: 9.RQ.2

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Question: 9.RQ.4

Describe how agency theory may help to explain the dividend policy of businesses. ...

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Question: 9.Act.1

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Question: 9.Act.2

Bio-tech Ltd, a private limited company, started trading in Year 1 and made a trading profit of £200,000 in this year. In Year 2, the business made a trading loss of £150,000 but made a profit on the sale of its office buildings of £30,000. Other non-current assets were revalued during the year, ...

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Question: 9.Act.3

Why might an increase in the dividend (D1) not lead to an increase in share price (P0)? (Hint: Think of the other variables in the equation.) ...

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