At a recent board of directors meeting of the Chocolate Teapot Company an argument took place between the financial director, the marketing director and the chief executive officer (CEO) concerning the companys dividend policy. The CEO argued that no dividend is necessary in order to finance a number of highly positive NPV projects. The marketing director said that such a drastic dividend cut should not happen, as it would signal that the company was in trouble. The financial director said that when studying his M.Sc. in Finance he had learnt that dividend policy of a company was irrelevant.

You are required to discuss these three alternative viewpoints and indicate which you favour. (30 marks question)