Assume you decide to buy a share today for 100 because it announced a 10 dividend to be paid in a years time.

1List five assumptions of the Modigliani and Miller model and discuss, should the assumptions hold, how much your stock would be worth today should the company announce no dividend. Provide sufficient explanations for your answer.

2In real life, the Modigliani and Miller assumptions are not realistic. Discuss whether you agree or disagree with this statement, properly justifying your answer. Further, list three dividend policies that firms can follow, providing one advantage and one disadvantage for each of the policies.