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2. Answer the following questions: (15 points) (a) If increases in dividends tend to be followed by (immediate) increases in stock prices, how can it
2. Answer the following questions: (15 points) (a) If increases in dividends tend to be followed by (immediate) increases in stock prices, how can it be said that dividend policy is irrelevant? (b) Last month, Taiwan Electric Company, which had been having trouble with cost overruns on a power plant that it had been building, announced that it was "temporarily suspending dividend payments due to the cash flow crunch associated with its investment program". The company's stock price dropped from $30.5 to $26.8 when this announcement was made. Please explain the reason that caused the stock price drop. (c) The FCU Charitable Trust pays no taxes on its capital gains or on its dividend income or interest income. Would it be irrational for it to have low-dividend, high-growth stocks in its portfolios? Explain
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