1 You have been asked by a client to forecast the dividend per share of Clouds plc over the next 3 years. From initial investigation, you find out that the company paid a dividend of £1.00 per share last year. An examination of analysts’ earnings forecasts points to an expected earnings per share of £3 next year which is an increase from the current earnings per share of £2.75. The earnings per share 2 years from now are expected to be £3.50.
Using Lintner’s model, you estimate that the company has a long-term payout rate of 60 per cent and an adjustment factor of 50 per cent. (40 marks)

2 Review the reasons why corporations issue dividends when it appears from a tax perspective sub-optimal to do so. (30 marks)

3 In recent years, share repurchases have become more common than cash dividends.
Explain why you think this is so, using research you have read to support your answer. (30 marks)