Question 1(20 marks)
a) What is dividend policy? (3 marks)
b) Briefly discuss the three major theories on dividend policy. (12 marks)
c) How does tax affect dividend policy? (5 marks)
Question 2(20 marks)
a) Define financial distress using the stock-bas approach and flow-based approaches. (6 marks)
b) What is private workout? Why do firms use formal bankruptcies to restructure rather than private workouts? (8 mark).
c) Discuss the factors that determine the present value of financial distress costs. (6 marks).
Question 3 (20 marks)
a) Discuss the things a firm can do to make a takeover less likely. (7 marks)
b) Discuss the four basic categories of synergy from acquisition. (8 marks).
c) In dividend policy, how can a company meet shareholder objectives while at the same time meeting the needs of other stakeholders? (5 marks)
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