This question requires you to analyse the dividend policy of EasyJet plc. You can find documents related to this question in the Assessment resources folder on the BB831 website. Not all of these documents will be necessary to answer this question. Likewise, you are free to use other resources (particularly in part (a)) if you feel your answer would benefit from including them.
• a. Briefly describe explanations offered by the literature of why firms pay dividends, using academic referencing where appropriate.
• b.Calculate EasyJet’s dividend payout ratios: one payout ratio based on its net income and one based on its free cash flow available for shareholders (i.e. its free cash flow to equity, FCFE) for the financial year ended 2015.
• c.Comment on EasyJet’s dividend policy and explain why it may have chosen its dividend history based on the theories identified in part (a) and your results from part (b). Based on your analysis, would you recommend that EasyJet returned more cash or less cash to its shareholders for its fiscal years ended 2016 and 2017?
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