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(a) Critically explain the dividend retention versus distribution dilemma faced by the firm. (8 marks) (b) Explain the Modigliani and Miller (M&M) argument that dividends
(a) Critically explain the dividend retention versus distribution dilemma faced by the firm. (8 marks) (b) Explain the Modigliani and Miller (M\&M) argument that dividends are irrelevant. (8 marks) (c) Explain the counterarguments to M\&M - that dividends do matter. (8 marks) (d) Identify and discuss the factors affecting a firm's dividend and retention of earnings policy. (8 marks) (e) Define "stock repurchase" and explain why (and how) a firm might repurchase stock. (8 marks) (Total marks: 40 Marks) Question 2 Time Value of Money: Know this terminology and notation (a) Why are (1+i) and (1+i)t called interest factors? (b) How much will $10,000 placed in a bank account paying 5% per year be worth compounded annually? (c) Find the value of $10,000 earning 5% interest per year after two years. (d) Find the value of $10,000 in 10 years. The investment earns 5% per year. (e) Find the value of $10,000 in 10 years. The investment earns 8% for four years and then earns 4% for the remaining six years. (Each question carries 8 marks) (Total Marks: 40 marks)
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