Future including cash dividend and share dividend policies

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Deloraine Ltd (Deloraine) is a small listed public company. Its shares are currently trading at $8 per share. Deloraine is considering different dividend policies for the future including cash dividend and share dividend policies. Deloraine’s shareholders’ equity is as follows: Preference shares (10,000 shares) Ordinary shares (200,000 shares) Retained Earnings Total shareholders’ equity: Required $100,000 $600,000 $350,000 $1,050,000 a Briefly discuss the advantages and disadvantages of the following dividend policies from the firm’s point of view: i Payment of a fixed cash dividend payout ii Payment of a cash dividend at a constant pay-out ratio equal to 40% of positive earnings iii Payment of a share dividend [marks] b Show the effect that the payment of a $0.80 cash dividend to ordinary shareholders would have on Deloraine’s shareholders’ equity. c Show the effect that the payment of 10% share dividend to ordinary shareholders would have on Deloraine’s shareholders’ equity. d What are the likely consequences (if any) of the payment of a share dividend on the share price?

Reference no: EM131878434

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