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Optimal Dividend policy and optimal capital structure

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Optimal Dividend policy and optimal capital structure

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • November 27, 2015 at 4:37 am #285612
    dragon76
    Member
    • Topics: 50
    • Replies: 77
    • ☆☆

    Dear John,

    How to devise an optimal dividend policy and Optimal capital structures, pls. advise?

    Much thanks

    November 27, 2015 at 8:07 am #285643
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51571
    • ☆☆☆☆☆

    You can’t ‘devise’ an optimal dividend policy – there is no such thing and you could not be asked to in the exam. What you can be asked is to discuss the factors involved in deciding on a dividend policy (such as the signalling effect, the clientele effect, etc.) and the theories relating to it (such as the dividend irrelevancy theory).
    All of this is covered in the Paper F9 lectures and notes as well as those for P4.

    With regard to an optimal capital structure, again you cannot ‘devise’ an optimal structure, and you cannot therefore be asked to in the exam. What you can be asked is to discuss the theories involved (in particular M&M, and also (but less importantly) the pecking order theory) and the limitations and assumptions involved.
    Again, all of this is covered in our lectures and notes.

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