Q12

(ii) JJ Capital has 50 million ordinary shares on issue. The share price is $20. JJ company paid r $1.00 dividend last year, from earnings per share of $1.50. The Board wants to raise the dividend to $1.50 for this year only (a 100% payout ratio) berore returning to $1.00 dividends next year.

Will this one-off $1.50 dividend increase shareholder wealth, decrease it, or have no impact at all on shareholder wealth? Explain your answer, providing a clear description of exactlv how the extra$0.50 dividend per share will affect an investor's wealth. (3 marks.)

(ii) On the day the $1.50 dividend is announced to shareholders, what do you expect the stock price to do in response, and why?