Mondrian plc is a newly formed company which aims to maximise the wealth of its shareholders. The
Question:
Director A argues that cash dividends would be welcomed by investors, and that as high a dividend payout ratio as possible would reflect positively on the market value of the company's shares.
Director B argues that whether a cash dividend is paid or not is irrelevant in the context of shareholder wealth maximisation.
Director C takes an opposite view to Director A and argues that dividend payments should be avoided as they would lead to a decrease in shareholder wealth.
Required
(a) Discuss the arguments for and against the position taken by each of the three directors.
(b) Assuming the board of directors decides to pay a dividend to shareholders, what factors should be taken into account when determining the level of dividend payment?
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Corporate Finance and Investment decisions and strategies
ISBN: 978-1292064062
8th edition
Authors: Richard Pike, Bill Neale, Philip Linsley
Question Posted: