QUESTION 6 (20 marks) (a) ABC Ltd pays fully franked dividends. The company announces that its next dividend per share will increase. The market was not expecting this increase Explain the effect of the dividend announcement on the company's share price. (5 marks) il Explain what would happen to the share price on the ex-dividend date, assuming no other events (5 marks) (b) DEF Ltd, a company with volatile earings, is determining its payout policy 1 What level of cash dividends (low/high) is appropriate? Clearly explain your reasoning (5 marks) If the company was to pay cash dividends, which type of payout policy (constant payout ratio policy, constant dollar payout policy, or low-regular and extra payout policy) would you recommend it use and why