Question Five (a) Briefly discuss five reasons for companies to choose repurchases rather dividends under a classical tax system. (5 marks) Briefly discuss the following terms in relation to dividend policy: (b) (c) (i) the signalling hypothesis (ii) the agency cost hypothesis (iii) the clientele effect (6 marks) To Australian resident investors a dollar of franked dividend is worth more than a dollar of unfranked dividend. (i) Do you agree with the above statement? (ii) Briefly explain the terms franked dividend and unfranked dividend. (3 marks) (d) Bill and Sally both own 1,000 shares in BBPG Ltd. BBPG declares a $2 fully franked dividend on November 1. Bill has a marginal tax rate of 20% and Sally has a marginal tax rate of 47%. The corporate tax rate is 30%. (i) Will Bill owe additional tax on this dividend or will he receive a tax refund? (1 mark) (ii) If Bill owes additional tax, calculate the amount of additional tax that he has to pay. Conversely, if Bill will receive a tax refund, calculate the amount of the refund. (2 marks) (iii) Will Sally owe additional tax on this dividend or will she receive a tax refund? (1 mark) (iv) If Sally owes additional tax, calculate the amount of additional tax that she has to pay. Conversely, if Sally will receive a tax refund, calculate the amount of the refund. (2 marks)