A company was distributing 5$ of dividend per share till this year The board decided to decrease the dividend per share to 3 5$ for the current quarter only This information is leaked to the public on 23rd of April but the official announcement is made on April 25th Assume the tax on dividend is same as tax on capital gains and investors believe that the decrease in dividends is a good action taken by the company as it is a bad time in the economy and has nothing to do with earnings a ) (9 points) What happens to the share price, increase, decrease or remain similar) under the following theories of dividend on announcement day Assume ex date is June 15th What happened to share price on ex date How much the price will decrease or increase 23 Apr 25 Apr 15 June Modigliani and Miller Irrelevance Signaling Agency Clientele Effect ( Assuming majority of investors dislike dividend) b )(7 points) Under Modigliani and Miller world, as the CEO of company, when you decided to distribute 1 Billion dollar cash, one of your shareholders, Mr A, who purchased the stock on the ex date, raised a concern that he will not be getting any dividend and he will be adversely affected by the distribution of the cash On the other hand, another shareholder, Mr B, who was holding the stock before the ex date argued that the earnings per share decreased and he is worse off because of the dividend payment What would be your answer to these shareholders Do you agree or not agree with them If you agree justify your answer If you dont agree, again justify your answer

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A company was distributing 5$ of dividend per share till this year. The board decided to decrease the dividend per share to 3.5$ for the

A company was distributing 5$ of dividend per share till this year. The board decided to decrease the dividend per share to 3.5$ for the current quarter only. This information is leaked to the public on 23rd of April but the official announcement is made on April 25th. Assume the tax on dividend is same as tax on capital gains and investors believe that the decrease in dividends is a good action taken by the company as it is a bad time in the economy and has nothing to do with earnings.

a-) (9 points) What happens to the share price, increase, decrease or remain similar) under the following theories of dividend on announcement day? Assume ex-date is June 15th. What happened to share price on ex-date. How much the price will decrease or increase?

	23-Apr	25-Apr	15-June
Modigliani and Miller Irrelevance
Signaling
Agency
Clientele Effect ( Assuming majority of investors dislike dividend)

b-)(7 points) Under Modigliani and Miller world, as the CEO of company, when you decided to distribute 1 Billion dollar cash, one of your shareholders, Mr. A, who purchased the stock on the ex-date, raised a concern that he will not be getting any dividend and he will be adversely affected by the distribution of the cash.

On the other hand, another shareholder, Mr. B, who was holding the stock before the ex-date argued that the earnings per share decreased and he is worse off because of the dividend payment.

What would be your answer to these shareholders? Do you agree or not agree with them? If you agree justify your answer. If you dont agree, again justify your answer.