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a) Market reacts positively to dividend increases and negatively-(Answered)

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a) Market reacts positively to dividend increases and negatively dividend decreases. Threeexplanations are provided for this notion.i. Information content (signalling) hypothesis,ii. Free cash flow hypothesisiii. Clientele effectDiscuss these hypotheses related to dividend policy.(30 marks)(b) Briefly discuss five reasons for companies to choose repurchases rather dividends under aclassical tax system.(30 marks)(c) Identify (interim or final) dividend change using "dividend history from the DatAnalysisPremium Database" for the company allocated to you for the assignment 2.A dividend change is defined as the relative difference from the previous year's level.? Interim dividend change = interim dividend per share in year t minus interim dividend per share inyear t-1.? Final dividend change = Final dividend per share in year t minus Final dividend per share in yeart-1.Step 2Announcement date for the dividend change can be identified from "ASX announcements from theDatAnalysis Premium Database".? Announcement date for interim dividend change: use the announcement date of half yearlyreport? Announcement date for final dividend change: use the announcement date of preliminary finalreport? Select "ASX announcements"? select "Search option - Click here to refine your search by ASX Announcement Typeand/or text search"? for Announcement Type: select periodic reports? for Sub-Announcement Type: select preliminary - final statement for final dividend; halfyearly report interim dividend change? specify the date rageStep 3(i) Calculate three day return earned by your firm for the period from the day before theannouncement continuing through the day after the announcement date; and two day return earnedby your firm for the period from the day of the announcement to the day after the announcementdate(ii) Calculate the market return for the corresponding periods in (i).(iii) Calculate the excess: (i) - (ii)Step 4Check the results for any other two students in your tutorial class and report that result in yourassignment 2Step 5Discuss the relevant theory with the findings in Step 3 and Step 4


FIN3CFI Corporate Finance

 

Semester 1, 2016

 

Assignment 2

 

Need to be submitted to the tutor, in class, in Week 12

 

(a)

 


 

Market reacts positively to dividend increases and negatively dividend decreases. Three

 

explanations are provided for this notion.

 

i.

 

Information content (signalling) hypothesis,

 

ii.

 

Free cash flow hypothesis

 

iii.

 

Clientele effect

 

Discuss these hypotheses related to dividend policy.

 

(30 marks)

 

(b) Briefly discuss five reasons for companies to choose repurchases rather dividends under a

 

classical tax system.

 

(30 marks)

 

(c) Identify (interim or final) dividend change using "dividend history from the DatAnalysis

 

Premium Database" for the company allocated to you for the assignment 2.

 

A dividend change is defined as the relative difference from the previous year's level.

 

Interim dividend change = interim dividend per share in year t minus interim dividend per share in

 

year t-1.

 

Final dividend change = Final dividend per share in year t minus Final dividend per share in year

 

t-1.

 

Step 2

 

Announcement date for the dividend change can be identified from "ASX announcements from the

 

DatAnalysis Premium Database".

 

Announcement date for interim dividend change: use the announcement date of half yearly

 

report

 

Announcement date for final dividend change: use the announcement date of preliminary final

 

report

 

Select "ASX announcements"

 

select "Search option - Click here to refine your search by ASX Announcement Type

 

and/or text search"

 

for Announcement Type: select periodic reports

 

for Sub-Announcement Type: select preliminary - final statement for final dividend; half

 

yearly report interim dividend change

 

specify the date rage

 

Step 3

 

(i) Calculate three day return earned by your firm for the period from the day before the

 

announcement continuing through the day after the announcement date; and two day return earned

 

by your firm for the period from the day of the announcement to the day after the announcement

 

date

 

(ii) Calculate the market return for the corresponding periods in (i).

 

(iii) Calculate the excess: (i) - (ii)

 


 

Step 4

 

Check the results for any other two students in your tutorial class and report that result in your

 

assignment 2

 

Step 5

 

Discuss the relevant theory with the findings in Step 3 and Step 4.

 

(40 marks)

 

(30 + 30 + 40 = 100 marks)

 


 

 

Paper#9257340 | Written in 27-Jul-2016

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