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ACCT7012 Corporate Finance Tutorial 9 Solutions
9. DIVIDEND POLICY
Chapter 14
CRITICAL THINKING AND CONCEPTS REVIEW
14.1 Dividend Policy Irrelevance. How is it possible that dividends are so important, but, at
the same time, dividend policy is irrelevant? LO 14.2
Answers: Dividend policy deals with the timing of dividend payments, not the amounts ultimately
paid. Dividend policy is irrelevant when the timing of dividend payments doesn’t affect the present
value of all future dividends.
14.6 Dividends and Share Price. If increases in dividends tend to be followed by
(immediate) increases in share prices, how can it be said that dividend policy is irrelevant?
LO 14.2
Answers: The change in price is due to the change in dividends, not to the change in dividend policy.
If the increase of dividend signals the increase of the sustainable increase of the company’s earning
potential, the stock price may increase without the change of the company’s dividend policy.
14.7 Dividends and Share Price. Last month, Central Victoria Power Company, which had
been having trouble with cost overruns on a brown coal power plant that it had been
