Revision Question. Please answer questions a) b)

Wolverine Inc. is a publicly traded company. The company' s profit has been increasing constantly at a yearly rate of 5% for the last 5 years. The Chief Executive Officer of the company, Matt, would like see if its possible to increase the dividend payout ratio of the company in order to share more profit with the shareholders. He requests the views of the Chief Financial Officier of the company, Rajiv. The latter believes that there are many investment opportunities available for the company and mentions that he would like to have cash in hand to meet unforeseen needs and opportunities. a) Based on the information provided, critically asses whether Wolverine Inc. should increase its dividend or not, or whether an alternative method should be used to distribute the profit? Clearly justify your answer. b) One of the managers of the company has told Matt that a low dividend payout should be maintained as dividends are taxed at a higher rate than capital gains in the country. He argues that the company will loose the high tax bracket investors if the company increases the dividend payout. (i) On what theory is the manager basing himself? Clearly justify your answer. (ii) Critically discuss how far you agree with the manager