MAC3761 TEST 3 2923 MEMO
What are the two aspects of shareholder returns? - ANSWER-Dividends &
Capital Growth
What are the 3 Divergent Dividend Theories? - ANSWER-1. Dividend Irrelevance
theory(Modigliani and Miller)
2.Bird-in-hand theory
3.Tax Preference Theory
What is the Miller and Modigliani Theory of Irrelevance? - ANSWER-Dividend policy
of co is irrelevant to the value of the firm
Sh's can create, increase or reduce their 'dividend' through selling or buying shares
What is the Bird-in-Hand theory? - ANSWER-Dividend Policy of a co is relevant to the
value of the firm
Current certain dividends are preferred by investors over uncertain future capital
growth
What is the Tax-Preference Theory? - ANSWER-Dividend Policy of co is relevant to
value of firm
Higher dividend payouts reduce sh value when dividends are taxed at a higher rate
than capital growth
How does the constant dividend/earnings policy treat dividends? - ANSWER-Pays
sh's a dividend which is calculated at a constant percentage of earnings
How does the Residual dividend policy treat dividends? - ANSWER-Dividend payed
after taking into account:
-capital expenditure that investments require and
-other working capital requirements and
-other operational needs
paid on residual amount of equity generated after firms current financial obligations
have been met
How does the Zero Payout policy treat dividends? - ANSWER--Firms may not pay
dividends due to:
-insufficient profits or;
-as voluntary choice and prefer alternative forms of distribution to shareholders
What are the three types of dividend payments(in terms of timing) that are common
in South Africa? - ANSWER--Interim Dividend
-Final Dividend
-Special Dividend
, What is the interim Dividend? - ANSWER--Normally declared in the middle of
accounting reporting period when interim results are issued
How does the JSE define an interim dividend? - ANSWER-a dividend after a reporting
period eg 6montly
What is the Final Dividend? - ANSWER-Declared at the end of the accounting period
when final annual results are issued
How does the JSE define the final dividend? - ANSWER-a Dividend declared for the
financial year-end
What is the Special Dividend? - ANSWER-Issued over and above final dividend
payment
How does the JSE define the Special dividend? - ANSWER-a dividend declared for the
interim or financial year-end, over and above the normal dividend
In what situation is a liquidation dividend paid? - ANSWER-Paid when a company is
wound up
To whom is the liquidation dividend paid? - ANSWER-Paid to registered shareholders
What is the timing considerations for a liquidation dividend? - ANSWER-Can be paid
as either interim or final liquidation payment
When is an Interim liquidation dividend paid - ANSWER-Before the final winding up
of co
when is the final liquidation dividend paid? - ANSWER-When co's winding up has
been finalised and there is residual interest due to the shareholders
What are the 5 important dates regarding a dividend payment and what do each
mean? - ANSWER-1. Declaration date:
Date dividend declaration announced to sh's
Normally done through SENS (JSE Listed co's)
2. Cum-div rights trading date
Last day on which share will trade inc dividend
3. Ex-Div rights trading date
First day on which share trades ex the dividend
4. Dividend Record Date
Day on which holder of share will be considered registered sh'r for the dividend
What are the two aspects of shareholder returns? - ANSWER-Dividends &
Capital Growth
What are the 3 Divergent Dividend Theories? - ANSWER-1. Dividend Irrelevance
theory(Modigliani and Miller)
2.Bird-in-hand theory
3.Tax Preference Theory
What is the Miller and Modigliani Theory of Irrelevance? - ANSWER-Dividend policy
of co is irrelevant to the value of the firm
Sh's can create, increase or reduce their 'dividend' through selling or buying shares
What is the Bird-in-Hand theory? - ANSWER-Dividend Policy of a co is relevant to the
value of the firm
Current certain dividends are preferred by investors over uncertain future capital
growth
What is the Tax-Preference Theory? - ANSWER-Dividend Policy of co is relevant to
value of firm
Higher dividend payouts reduce sh value when dividends are taxed at a higher rate
than capital growth
How does the constant dividend/earnings policy treat dividends? - ANSWER-Pays
sh's a dividend which is calculated at a constant percentage of earnings
How does the Residual dividend policy treat dividends? - ANSWER-Dividend payed
after taking into account:
-capital expenditure that investments require and
-other working capital requirements and
-other operational needs
paid on residual amount of equity generated after firms current financial obligations
have been met
How does the Zero Payout policy treat dividends? - ANSWER--Firms may not pay
dividends due to:
-insufficient profits or;
-as voluntary choice and prefer alternative forms of distribution to shareholders
What are the three types of dividend payments(in terms of timing) that are common
in South Africa? - ANSWER--Interim Dividend
-Final Dividend
-Special Dividend
, What is the interim Dividend? - ANSWER--Normally declared in the middle of
accounting reporting period when interim results are issued
How does the JSE define an interim dividend? - ANSWER-a dividend after a reporting
period eg 6montly
What is the Final Dividend? - ANSWER-Declared at the end of the accounting period
when final annual results are issued
How does the JSE define the final dividend? - ANSWER-a Dividend declared for the
financial year-end
What is the Special Dividend? - ANSWER-Issued over and above final dividend
payment
How does the JSE define the Special dividend? - ANSWER-a dividend declared for the
interim or financial year-end, over and above the normal dividend
In what situation is a liquidation dividend paid? - ANSWER-Paid when a company is
wound up
To whom is the liquidation dividend paid? - ANSWER-Paid to registered shareholders
What is the timing considerations for a liquidation dividend? - ANSWER-Can be paid
as either interim or final liquidation payment
When is an Interim liquidation dividend paid - ANSWER-Before the final winding up
of co
when is the final liquidation dividend paid? - ANSWER-When co's winding up has
been finalised and there is residual interest due to the shareholders
What are the 5 important dates regarding a dividend payment and what do each
mean? - ANSWER-1. Declaration date:
Date dividend declaration announced to sh's
Normally done through SENS (JSE Listed co's)
2. Cum-div rights trading date
Last day on which share will trade inc dividend
3. Ex-Div rights trading date
First day on which share trades ex the dividend
4. Dividend Record Date
Day on which holder of share will be considered registered sh'r for the dividend
