Part C It is 31 January 2021 and the managers of Clear Plc. are considering a change in the company’s dividend policy. E
Posted: Thu Apr 28, 2022 1:56 pm
Part C
It is 31 January 2021 and the managers of Clear Plc. are
considering a change in the company’s dividend policy. Earnings per
share for 2020 for the company were 60p, and the finance director
has said that he expects this to increase to 65p per share for
2021. The increase in earnings per share is in line with market
expectations of the company’s performance. The pattern of recent
dividends, which are paid on 31 December is as follows:
Year
2020
2019
2018
2017
2016
2015
Dividend per Share (pence)
35.0
32.7
30.6
29.2
27.6
26.2
The managing director has proposed that 65 per cent of earnings
in 2021 and subsequent years should be retained for investment in
new product development. It is expected that, if this proposal is
accepted, the dividend growth rate will be 10.5 per cent. Clear
PLC’s cost of capital is estimated to be 15 per cent.
Calculate the share price of Clear PLC in the following
circumstances.
(9
marks)
(6
marks)
(c) Does the dividend policy adopted
by a company impact upon the market value of that company? Academic
findings within this area have provided conflicting evidence with
two distinct theoretical schools of thought; one supporting
dividend relevance and the other dividend irrelevance. Critically
analyse and evaluate the differing theoretical viewpoints, ensuring
the response is developed through incorporating relevant academic
research that has been performed within this
area.
(35
marks)
It is 31 January 2021 and the managers of Clear Plc. are
considering a change in the company’s dividend policy. Earnings per
share for 2020 for the company were 60p, and the finance director
has said that he expects this to increase to 65p per share for
2021. The increase in earnings per share is in line with market
expectations of the company’s performance. The pattern of recent
dividends, which are paid on 31 December is as follows:
Year
2020
2019
2018
2017
2016
2015
Dividend per Share (pence)
35.0
32.7
30.6
29.2
27.6
26.2
The managing director has proposed that 65 per cent of earnings
in 2021 and subsequent years should be retained for investment in
new product development. It is expected that, if this proposal is
accepted, the dividend growth rate will be 10.5 per cent. Clear
PLC’s cost of capital is estimated to be 15 per cent.
Calculate the share price of Clear PLC in the following
circumstances.
(9
marks)
(6
marks)
(c) Does the dividend policy adopted
by a company impact upon the market value of that company? Academic
findings within this area have provided conflicting evidence with
two distinct theoretical schools of thought; one supporting
dividend relevance and the other dividend irrelevance. Critically
analyse and evaluate the differing theoretical viewpoints, ensuring
the response is developed through incorporating relevant academic
research that has been performed within this
area.
(35
marks)