1. Microsoft, which has had a history of high growth and pays no dividends, announces that it will start paying dividends next quarter. How would you expect its stock price to react to the announcement? Why?
2. JC Automobiles is a small auto parts manufacturing firm, that has paid $1.00 in annual dividends each year for the past five years. It announces that dividends will increase to $1.25 next year. What would you expect the price reaction to be? Why? If your answer is different from the previous problem, explain the reasons for the difference.