SECTION $2$: Choose two $(2)$ questions from this section

Question $2$

$($i$)$ Briefly identify and discuss three types of dividend payout policies that may be used by a company and explain M&M dividend irrelevance theory. $(8$ marks$)$

$($ii$)$ Mars company has $$1000$ in earnings and $$900$ in planned capital spending. The company has a target $\frac{D}{E}$ ratio of $0\mathrm{.}5.$ If the company reinvests all its earnings, its equity will increase by $$1,000.$ The company must borrow an additional $$500$ to maintain its target capital structure. Without selling new equity, the amount of funds that can be generated is $$1,500.$ The firm intends to pay dividends since planned capital spending is less than the total amount of capital.

Required:

a$.$ what type of dividend policy is Mars most likely pursuing?

$(2$ marks ${)}^2$

b$.$ To maintain the target capital structure, show how the planned capital spending will be funded and how much will be available for dividends.

$(5$ marks$)$