Question: (1) How is it possible that dividends are so important, but at the same time, dividend policy is irrelevant? (05 Marks) (2) Litz Company has

(1) How is it possible that dividends are so important, but at the same time, dividend policy is irrelevant? (05 Marks)

(2) Litz Company has declared a dividend of Rs. 15.00 per share. Suppose capital gains are not taxed but dividends are taxed at 34%. According to the tax regulations it is required that taxes be withheld at the time of the dividend is paid. Litz sells its shares for Rs.130 per share, and the stock is about to go ex-div. What would be the ex-div price will be? (05 Marks)

(3) What is the impact of a stock repurchase on a companys debt ratio? Does this suggest another use of excess cash? (05 Marks)

(4) How do you think tax law change affect the relative attractiveness of stock repurchases compared to dividend payments? (03 Marks)

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