You are working in the Financial Consultancy Department of a large investment bank. One of your clients, Aungier plc , has sought your consultation on the likely impact its proposed dividend policy for 2 0 2 4 will have on its shareholders. Specifically, Aungier requires you to advise on the factors that are likely to underpin the response of some of its shareholders to the proposed dividend policy, and if appropriate, to recommend an alternative dividend policy that would fit with its investment and financing activities. As such, you have gathered the following

 

information in relation to the firm:

 

$2023202220212020$

 

 Dividend Per Share $1\mathrm{.}501\mathrm{.}501\mathrm{.}501\mathrm{.}50$ 

 

 $\%$ of Shares Owned by Institutional 

 

 Shareholders $5\%$ 

 

 $\%$ of Shares Owned by Retail Shareholders $95\%$ 

 

  In $2024$ Aungier plc is proposing to invest in a major project with a positive 

 

 NPV$.$ The project would be financed partially by the sale of new shares and 

 

partially by funds released via a reduction in the dividend per share. The new

 

 dividend per share in $2024$ would be $0\mathrm{.}40.$ 

 

 $80\%$ of the firms retail shareholders are retired individuals. 

 

  The shares in Aungier plc are highly illiquid. 

 

  The firms leverage ratio is $10\%,$ whilst the industry average leverage ratio is 

 

$30\%.$

 

  Dividends are taxed under the PAYE tax system, where income up to $40,000$ 

 

 is taxed at $20\%$ and income over $40,000$ is taxed at $40\%.$ The capital gains 

 

 tax rate is $33\%.$ 

 

Required:

 

Write a report for Aungier plc in which you outline the likely response of its retail

 

shareholders to the proposed dividend policy, and explain the factors you believe will

 

underpin this response. Make recommendations as to the dividend policy the firm

 

 should adopt in $2024$ and the manner in which the project should be financed. Justify 

 

the recommendations you make.

 

Answer rating: 100% (QA)

Report for Aungier plc Analysis of Proposed Dividend Policy and Shareholder Response Introduction Aungier plc is considering a major project investment in 2024 which would have a positive net present ... View the full answer