a) A company's EPS over the last six years are as follows.
|
Year
|
12
|
11
|
10
|
09
|
08
|
07
|
|
EPS Shs.
|
27.30
|
25
|
22.30
|
18.40
|
23.20
|
21.80
|
Required:
i) Determine the annual DPS under the following policies.
ii) A regular dividend of sh. 8 and an extra dividend to bring the payout ratio to 40% if it otherwise would fall below.
b) Do you believe it will be justifiable for a company to borrow money to pay dividends? Explain
c) Do you believe it will be justifiable for a company to borrow money to pay dividends? Explain.
d) Briefly explain the pecking order theory and the tradeoff theory of the capital structure.