Dividend Policy – NBC Institute

FM – May 2022 – L3 – Q7 – Dividend Policy

Brief on various dividend concepts, including residual theory, clientele effect, and signaling.

Question

You are required to provide a briefing on the following dividend concepts:
a. Residual theory of dividends (3 Marks)
b. Clientele effect (3 Marks)
c. Asymmetric information (2 Marks)
d. Signaling properties of dividends (3 Marks)
e. The ‘bird-in-the-hand’ argument (4 Marks)

Answer

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Tags: Bird-in-the-Hand, Clientele Effect, Dividends, Residual Theory, Signaling
Level: Level 3

Topic: Dividend Policy

FM – May 2023 – L3 – Q6 – Dividend Policy

Evaluate the comments in Neko Plc's annual report regarding dividend policy, share price, cost reduction, and tax minimization strategies.

Question

Neko Plc has issued the following statement as part of its annual report:
“This company aims at all times to serve its shareholders by paying a high level of dividends and adopting strategies that will increase the company’s share price. Satisfying our shareholders will ensure our success. The company will reduce costs by manufacturing overseas wherever possible and will attempt to minimize the company’s global tax bill by using tax haven facilities.”

Required:
a. Discuss the validity and implications of each of the comments and strategies in the above statement. (10 Marks)

b. Produce a short note outlining how the company should estimate its dividend capacity. (5 Marks)

Answer

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Tags: Cost Minimization, Dividend Capacity, Shareholder Value, Tax Haven Strategies
Level: Level 3

Topic: Dividend Policy

FM – Nov 2020 – L3 – Q6 – Dividend Policy

Evaluates the dividend payout and investment appraisal for Binko Industrial Services based on Modigliani and Miller's dividend policy, considering four potential projects.

Question

Binko Industrial Services plc is an all-equity financed and Stock Exchange-listed company. Recently, there have been changes at the board level, prompting a shift from conservative profit distribution to seeking new investment opportunities. In the financial year just ended, the company reported a profit of ₦50 million, similar to previous years. The company’s cost of equity is 15% per annum, and four investment projects have been identified, each with the same risk class as existing projects.

Required:

a. Calculate the dividend Binko Industrial Services plc should pay to shareholders in the financial year just ended, based on Modigliani and Miller’s 1961 proposition, ignoring taxation. (5 Marks)

b. Prepare notes for the board meeting, explaining Modigliani and Miller’s dividend policy proposition and reasons why the company may decide against the calculated dividend in (a). Your comments should address Binko’s circumstances. Work to the nearest ₦1,000. (15 Marks)

Answer

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Tags: Cash Flow Analysis, Cost of Equity, Dividend Policy, investment projects, Modigliani and Miller
Level: Level 3

Topic: Dividend Policy

FM – Nov 2022 – L3 – Q6 – Dividend Policy

Analyze P/E ratios and calculate dividend cover for companies in the food retail sector.

Question

Companies A, B, and C are in the food retailing sector of the stock market. The following key stock market statistics are provided.

Food Retailers: Ordinary Shares, Key Stock Market Statistics:

Company	A	B	C
Share Price (₦)	2.10	1.80	2.30
Earnings per Share (₦)	0.30	0.25	0.35
Dividend per Share (₦)	0.18	0.15	0.25

Required:

a. Illustrating your answer by using data from the table above, define and explain the term P/E ratio, and comment on the way it may be used by an investor to appraise a possible share purchase. (8 Marks)

b. Using data in the above table, calculate the dividend cover for Companies C and B, and explain the meaning and significance of the measure from the point of view of equity investors. (7 Marks)

(Total 15 Marks)

Answer

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Tags: Dividend Cover, Equity Valuation, Investment decisions, P/E Ratio, Stock Market Analysis
Level: Level 3

Topic: Dividend Policy
Series: NOV 2022

FM – Nov 2020 – L2 – Q4c – Dividend Policy

Distinguish between dividend irrelevance theory and traditional dividend relevance theory, and explain dividend relevance theories.

Question

There are two major opposing views of dividend policy: the Modigliani and Miller’s dividend irrelevance theory and the traditional view of dividend policy.

Required:

i) Distinguish between the TWO (2) opposing views of dividend policy. (2 marks)
ii) Explain TWO (2) of the dividend relevance theories. (3 marks)

Answer

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Tags: Dividend irrelevance, Dividend Policy, Dividend relevance, Modigliani and Miller
Level: Level 2

Topic: Dividend Policy
Series: NOV 2020

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

Question

Oliso Ghana Ltd paid a dividend of GH¢120 per share two years ago. In the previous and current year, dividend grew by 10% per annum. Starting from next year, dividend is projected to grow by 15% for the next three years and then 10% for another three years and finally settling at 12% forever. The investors expect 20% returns.

Required:
i) Calculate the value of a share in cedis for Oliso Ghana Ltd. (8 marks)
ii) If an investor holds 1,500 shares of the company, what will be the total value in cedis? (2 marks)

Answer

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Tags: Discounted Cash Flow, Dividend valuation, Growth rates, Stock valuation
Level: Level 2

Topic: Discounted cash flow, Dividend Policy
Series: MAR 2023

FM – MAY 2019 – L2 – Q5b – Business valuations | Dividend Policy

Identify and explain the weaknesses of the dividend growth model as a method for valuing companies.

Question

Question:
The dividend growth model also has its fair share of criticism. While some have hailed it as being indisputable and not subjective, recent academicians and practitioners have come up with arguments that make you believe the exact opposite. Recent studies have unearthed some glaring flaws in what was considered to be a perfect valuation model.

Required:
Identify and explain THREE (3) weaknesses of the dividend growth model as a way of valuing a company with shares. (6 marks)

Answer

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Tags: Corporate finance, Dividend growth model, Valuation
Level: Level 2

Topic: Business valuations, Dividend Policy
Series: MAY 2019

FM – NOV 2015 – L2 – Q2c – Dividend Policy

Calculate the average dividend growth rate for Sankofa Ltd based on given earnings and dividend cover.

Question

c. Sankofa Ltd has a dividend cover of 4 times and recorded the following earnings after tax:

Year	Earnings (GH₵)
2010	100,000
2011	120,000
2012	180,000
2013	220,000
2014	300,000

Required:
Calculate the average dividend growth rate for Sankofa Ltd. (5 marks)

Answer

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Tags: Dividend Growth Rate, Dividend Policy, Earnings
Level: Level 2

Topic: Dividend Policy
Series: NOV 2015

FM – May 2022 – L3 – Q7 – Dividend Policy

Brief on various dividend concepts, including residual theory, clientele effect, and signaling.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bird-in-the-Hand, Clientele Effect, Dividends, Residual Theory, Signaling
Level: Level 3

Topic: Dividend Policy

FM – May 2023 – L3 – Q6 – Dividend Policy

Evaluate the comments in Neko Plc's annual report regarding dividend policy, share price, cost reduction, and tax minimization strategies.

Question

Required:
a. Discuss the validity and implications of each of the comments and strategies in the above statement. (10 Marks)

b. Produce a short note outlining how the company should estimate its dividend capacity. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Minimization, Dividend Capacity, Shareholder Value, Tax Haven Strategies
Level: Level 3

Topic: Dividend Policy

FM – Nov 2020 – L3 – Q6 – Dividend Policy

Evaluates the dividend payout and investment appraisal for Binko Industrial Services based on Modigliani and Miller's dividend policy, considering four potential projects.

Question

Required:

a. Calculate the dividend Binko Industrial Services plc should pay to shareholders in the financial year just ended, based on Modigliani and Miller’s 1961 proposition, ignoring taxation. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Flow Analysis, Cost of Equity, Dividend Policy, investment projects, Modigliani and Miller
Level: Level 3

Topic: Dividend Policy

FM – Nov 2022 – L3 – Q6 – Dividend Policy

Analyze P/E ratios and calculate dividend cover for companies in the food retail sector.

Question

Companies A, B, and C are in the food retailing sector of the stock market. The following key stock market statistics are provided.

Food Retailers: Ordinary Shares, Key Stock Market Statistics:

Company	A	B	C
Share Price (₦)	2.10	1.80	2.30
Earnings per Share (₦)	0.30	0.25	0.35
Dividend per Share (₦)	0.18	0.15	0.25

Required:

b. Using data in the above table, calculate the dividend cover for Companies C and B, and explain the meaning and significance of the measure from the point of view of equity investors. (7 Marks)

(Total 15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dividend Cover, Equity Valuation, Investment decisions, P/E Ratio, Stock Market Analysis
Level: Level 3

Topic: Dividend Policy
Series: NOV 2022

FM – Nov 2020 – L2 – Q4c – Dividend Policy

Distinguish between dividend irrelevance theory and traditional dividend relevance theory, and explain dividend relevance theories.

Question

There are two major opposing views of dividend policy: the Modigliani and Miller’s dividend irrelevance theory and the traditional view of dividend policy.

Required:

i) Distinguish between the TWO (2) opposing views of dividend policy. (2 marks)
ii) Explain TWO (2) of the dividend relevance theories. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dividend irrelevance, Dividend Policy, Dividend relevance, Modigliani and Miller
Level: Level 2

Topic: Dividend Policy
Series: NOV 2020

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

Question

Required:
i) Calculate the value of a share in cedis for Oliso Ghana Ltd. (8 marks)
ii) If an investor holds 1,500 shares of the company, what will be the total value in cedis? (2 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Discounted Cash Flow, Dividend valuation, Growth rates, Stock valuation
Level: Level 2

Topic: Discounted cash flow, Dividend Policy
Series: MAR 2023

FM – MAY 2019 – L2 – Q5b – Business valuations | Dividend Policy

Identify and explain the weaknesses of the dividend growth model as a method for valuing companies.

Question

Required:
Identify and explain THREE (3) weaknesses of the dividend growth model as a way of valuing a company with shares. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate finance, Dividend growth model, Valuation
Level: Level 2

Topic: Business valuations, Dividend Policy
Series: MAY 2019

FM – NOV 2015 – L2 – Q2c – Dividend Policy

Calculate the average dividend growth rate for Sankofa Ltd based on given earnings and dividend cover.

Question

c. Sankofa Ltd has a dividend cover of 4 times and recorded the following earnings after tax:

Year	Earnings (GH₵)
2010	100,000
2011	120,000
2012	180,000
2013	220,000
2014	300,000

Required:
Calculate the average dividend growth rate for Sankofa Ltd. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dividend Growth Rate, Dividend Policy, Earnings
Level: Level 2

Topic: Dividend Policy
Series: NOV 2015

Topic: Dividend Policy

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FM – May 2022 – L3 – Q7 – Dividend Policy

Brief on various dividend concepts, including residual theory, clientele effect, and signaling.

You're reporting an error for "FM – May 2022 – L3 – Q7 – Dividend Policy"

FM – May 2023 – L3 – Q6 – Dividend Policy

Evaluate the comments in Neko Plc's annual report regarding dividend policy, share price, cost reduction, and tax minimization strategies.

You're reporting an error for "FM – May 2023 – L3 – Q6 – Dividend Policy"

FM – Nov 2020 – L3 – Q6 – Dividend Policy

Evaluates the dividend payout and investment appraisal for Binko Industrial Services based on Modigliani and Miller's dividend policy, considering four potential projects.

You're reporting an error for "FM – Nov 2020 – L3 – Q6 – Dividend Policy"

FM – Nov 2022 – L3 – Q6 – Dividend Policy

Analyze P/E ratios and calculate dividend cover for companies in the food retail sector.

You're reporting an error for "FM – Nov 2022 – L3 – Q6 – Dividend Policy"

FM – Nov 2020 – L2 – Q4c – Dividend Policy

Distinguish between dividend irrelevance theory and traditional dividend relevance theory, and explain dividend relevance theories.

You're reporting an error for "FM – Nov 2020 – L2 – Q4c – Dividend Policy"

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

You're reporting an error for "FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy"

FM – MAY 2019 – L2 – Q5b – Business valuations | Dividend Policy

Identify and explain the weaknesses of the dividend growth model as a method for valuing companies.

You're reporting an error for "FM – MAY 2019 – L2 – Q5b – Business valuations | Dividend Policy"

FM – NOV 2015 – L2 – Q2c – Dividend Policy

Calculate the average dividend growth rate for Sankofa Ltd based on given earnings and dividend cover.

You're reporting an error for "FM – NOV 2015 – L2 – Q2c – Dividend Policy"

FM – May 2022 – L3 – Q7 – Dividend Policy

Brief on various dividend concepts, including residual theory, clientele effect, and signaling.

You're reporting an error for "FM – May 2022 – L3 – Q7 – Dividend Policy"

FM – May 2023 – L3 – Q6 – Dividend Policy

Evaluate the comments in Neko Plc's annual report regarding dividend policy, share price, cost reduction, and tax minimization strategies.

You're reporting an error for "FM – May 2023 – L3 – Q6 – Dividend Policy"

FM – Nov 2020 – L3 – Q6 – Dividend Policy

Evaluates the dividend payout and investment appraisal for Binko Industrial Services based on Modigliani and Miller's dividend policy, considering four potential projects.

You're reporting an error for "FM – Nov 2020 – L3 – Q6 – Dividend Policy"

FM – Nov 2022 – L3 – Q6 – Dividend Policy

Analyze P/E ratios and calculate dividend cover for companies in the food retail sector.

You're reporting an error for "FM – Nov 2022 – L3 – Q6 – Dividend Policy"

FM – Nov 2020 – L2 – Q4c – Dividend Policy

Distinguish between dividend irrelevance theory and traditional dividend relevance theory, and explain dividend relevance theories.

You're reporting an error for "FM – Nov 2020 – L2 – Q4c – Dividend Policy"

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

You're reporting an error for "FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy"

FM – MAY 2019 – L2 – Q5b – Business valuations | Dividend Policy

Identify and explain the weaknesses of the dividend growth model as a method for valuing companies.

You're reporting an error for "FM – MAY 2019 – L2 – Q5b – Business valuations | Dividend Policy"

FM – NOV 2015 – L2 – Q2c – Dividend Policy

Calculate the average dividend growth rate for Sankofa Ltd based on given earnings and dividend cover.

You're reporting an error for "FM – NOV 2015 – L2 – Q2c – Dividend Policy"

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