QUESTION ONE
a. Outline the reasons that may constrain a company from paying dividends to its
shareholders at the end of a financial year.
b. Distinguish between residual dividend theory and clientele preference theory as they relate to dividend policy formulation.
c. Discuss the Modigliani and Miller dividend policy formulation.
QUESTION TWO
a. Distinguish between money market and capital market.
b. Explain economic advantages that are created by existence of:
i. Primary markets
ii. Secondary markets
iii. Portfolio management firms
c. Explain how the capital market authority can ensure faster growth and
development of Nairobi Securities Exchange or Securities Exchange in your
country
QUESTION THREE
a. Explain four reasons that may drive a company to raise equity finance rather
than debt finance.
b. There are three theories that are applied in determining capital structure of a
firm. For each of the following theories, state the author(s), the year, what the
theory states, and citation of an academic study that has used it and a brief
criticism of the theory.
i. Modigliani and miller hypothesis.
ii. Trade off theory.
iii. Pecking order theory.