Answer Happy

Question 4 (Total 20 marks) a. Why according to dividend irrelevance argument, the firm value depends on only optimal investment policy and not on the dividend pay-out? What are the shortcomings of the dividend irrelevance theory? (10 marks) b. Carsley Plc currently paid $2.50 dividend per share. Next year's dividend is expected to be $3 per share. After next year, dividends are expected to increase at a 9 percent annual rate for three years and a 6 percent annual rate thereafter. Calculate the current value of a share of Carsley's stock to an investor who requires a 15 percent return on his or her investment. (10 marks) a