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Part a Suppose management of Lilydale Sports Corporation decides to use cash to pay a dividend of $8,000,000, and then issues more shares to new

Part a

Suppose management of Lilydale Sports Corporation decides to use cash to pay a dividend of $8,000,000, and then issues more shares to new shareholders to replace the cash. What will happen to the market value of the existing shares and shareholders' wealth? Explain your answer clearly.

(5 marks)

Part b.

Deakin Ltd has announced a fully franked dividend of $1 per share. The company tax rate is 27.5 per cent. By how much should the share price fall on the ex-dividend date, if franking credits are fully valued?

(5 marks)

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