Question 5 (this question has three parts a) and b)) (3+(1+1+3) = 8 marks)

Part a)

Why do you think the dividend growth has less volatility than earnings growth? Explain clearly.

Part b)

Globex Corp. has 1000 shareholders as of 31 Dec 2019. On that date Globex Corp released its earnings. The earnings for the period is $1 million. The management decided to distribute all the earnings to the shareholders. On 25th March 2020 Globex Corp issued another 1000 shares to a new set of shareholders. On 31 Dec 2020 Globex Corp reported earnings of $1 million. The management again decided to distribute all its profit to shareholders.

i. What is the dividend per share on 31 Dec 2019?

ii. What is the dividend per share on 31 Dec 2020?

iii. How does the dividend per share on 31 Dec 2020 affect the old shareholders? Explain clearly.