(a) What happens to an Australian listed company's share price on the ex-dividend date and why? (b) Tunnel Limited is a listed company that pays regular cash dividends. Its earnings and capital expenditures are normally very stable and this is expected to continue. However, the company recently received a large, one-off cash inflow and now has excess cash on hand. It would like to distribute this cash to shareholders. i. ii. Should the company increase its regular dividend to pay out this cash? Why or why not? Name two theories that support your answer. Name one appropriate alternative to increasing the regular dividend in order to pay out this additional cash?

(a) What happens to an Australian listed company's share price on the ex-dividend date and why? (b) Tunnel Limited is a listed company that pays regular cash dividends. Its earnings and capital expenditures are normally very stable and this is expected to continue. However, the company recently received a large, one-off cash inflow and now has excess cash on hand. It would like to distribute this cash to shareholders. i. ii. Should the company increase its regular dividend to pay out this cash? Why or why not? Name two theories that support your answer. Name one appropriate alternative to increasing the regular dividend in order to pay out this additional cash?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter12: Valuation: Cash-flow Based Approaches

Section: Chapter Questions

Problem 5QE

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