Q5. Radiant Corporation, a market leader dealing in refrigeration products, has been paying dividend consistently over last several years The growth rate of dividend on an average has been 12%. The capitalisation rate of Radiant Corporation is 16%.

Consistent with its developmental philosophy Radiant Corporation acquired a technology for a new refrigerant that called for huge investment but offered a market potential of growth of 14% in earnings and dividends as well.

7,40,000

The management decided to skip the dividend for next three years However, as a measure of good corporate governance and to reassure the investors it announced that the dividend would re-commence in 4 years from now at Rs. 12 only and would offer better growth of 14% instead of 12%. What do you think would the impact on the price of shares of Radiant Corporation in the market of the announcement of new project and resultant postponement of dividend, assuming Gordon Assumptions?

In this context, Do you agree that dividend policy can be used to maximize the wealth position of equity holders Explain with reference to the determinant of dividend policy.