Theories

Question 1

What did M&M 1961 think about the pattern of dividends?

Answer 1

They thought over time the pattern of dividend payout is irrelevant in determining shareholder wealth (share price)

Question 2

What is the traditional theory of dividend policy?

Answer 2

They argue that a £1 dividend now is more than £1 of capital gain tomorrow.

Question 3

What is dividend signalling?

Answer 3

The idea that the increase or decrease of dividends signals the directors confidence. Greater dividends = greater confidence = increase share price.

Question 4

What is a share repurchase

Answer 4

An alternative to dividends - Reduce equity increase gearing
Use surplus cash without disturbing normal dividend policy.

Question 5

What is a scrip dividend?

Answer 5

It is an alternative to a cash dividend, where shareholders can choose between shares or cash.

Question 6

Does gearing, using the MV, include retained earnings?

Answer 6

No

Question 7

Does gearing, using the BV, include retained earnings?

Answer 7

Yes