Altura Mining Ltd Stock Return Analysis

This assignment analyzes the stock returns of Altura Mining Ltd. It involves calculating various returns, including three-day and two-day returns, using specific formulas. The assignment also calculates the excess return of the stock compared to the market return over these periods. Finally, it compares the results obtained with those of another student's analysis.

Running head: CORPORATE FINANCE
Corporate finance
Name of the student
Name of the university
Author note

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Table of Contents
(a) Dividend hypothesis........................................................................................................2
(b) Reasons behind choosing repurchase against dividend under classical tax system........3
(c) Calculation of return.......................................................................................................4
Reference....................................................................................................................................6

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(a) Dividend hypothesis
i. Information content or signalling hypothesis
The with regard to information among the outsiders and may lead to the actual
intrinsic value of the organization not to be available in the market. In accordance with that
the share price may not be accurate measure all the time for computing the organization’s
value. The M&M approach recommends that while the markets are not perfect, the price of
the shares may respond to the changes in the dividend. To be more specific, the
announcement of dividend may seem to communicate the implicit information regarding the
potential of the organization’s future earnings (Anwar, Singh & Jain, 2016). This proposition
of dividend hypothesis is known as the information content of the dividends or the signalling
hypothesis.
ii. Free cash flow hypothesis
Under this approach, all things being equal the organization make the payment of
dividend from the cash flows that are not available for reinvestment in the projects associated
with positive (NPV) net present value that have the higher values as compared to the free
cash flow retained by the organization.
iii. Clientele effect
As the investors are generally interested regarding the after tax return of the
investment, the capital gains and various tax treatment of the dividend has an impact on the
preference of the investor for capital gain versus dividends. This is actually the characteristics
of the Clientele effect. For instance, people with lower level of tax will have preference for
stable and high level of dividend (Kawano, 2014). On the contrary, people with high level of

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tax may have preference for the capital gains. However, some of the clienteles are
indifference for the capital gain and dividends.
(b) Reasons behind choosing repurchase against dividend under classical tax system
Stock repurchases are considered as the alternative for payment of dividends under the
classical tax systems. The stock repurchase takes place while the company asks the
shareholders for tendering their shares for the purpose of repurchase by them. Various
advantages of repurchase against dividend payment are as follows –
1. Generally most of the companies start with the share price that they feel as the good
point for entry and this point is considered when the shares are estimated as
undervalued. Further, if the company is aware about their business and the relative
price of the stock the company will not purchase the stock price at higher level as the
leading investors will believe that the management will perceive the stock price at the
lower level (Floyd, Li & Skinner, 2015).
2. Unlike the cash dividend the repurchase offers the investors to take their decision. The
shareholder has the option to decide regarding repurchasing the shares, accept
payment and make the payment for the taxes. However, with the cash dividend, the
shareholder does not have the option and are forced to accept dividend and make the
payment for taxes.
3. Sometimes the shares are blocked from 1 or more bigger shareholders in the market
and the timing is not predictable. The problem keeps away the potential shareholders
as they may get worried regarding the share flooding in the market and reducing the
value of the stock (Golden & Kohlbeck, 2017). Under such circumstances, share
repurchase is useful option.

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4. Further, the repurchase is preferred against dividend as the company has to pay lower
level of tax as compared to dividend. Therefore, the repurchase is tax efficient as
compared to dividend (Lai et al., 2017)
5. If the equity grants or large stock options are issued to the management and the
employees, repurchase will maximize the neutralization of negative impact over the
diluted EPS. Further, actual outstanding share will not be reduced.
(c) Calculation of return
i. Interim and final dividend
The company Altura Mining Limited has not paid dividend during the last 5 years. Therefore,
the change in dividend is invalid
ii. Day return
As the dividend is not paid by the company, the closing period of the financial
statement is considered for calculation of report –
Date Close
June 29, 2016 0.18
June 30, 2016 0.19
July 01, 2016 0.2
Three day return from June 29, 2016 to July 01, 2016 will be –
= (T+1)-(T-1)/ (T-1)
= (0.2-0.18)/0.18 = 11.11%
Two day return from June 30, 2016 to July 01, 2016 will be –
= (T+1)-(T0)/ (T0)
= (0.2-0.19)/0.19 = 5.26%

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iii. Market return
Date Close
June 29, 2016 2073.17
June 30, 2016 2099.34
July 01, 2016 2095.05
Three day return from June 29, 2016 to July 01, 2016 will be –
= (T+1)-(T-1)/ (T-1)
= (2095.05 -2073.17)/2073.17 = 1.06%
Two day return from June 30, 2016 to July 01, 2016 will be –
= (T+1)-(T0)/ (T0)
= (2095.05-2099.34)/2099.34 = -0.20%
iv. Excess of return
Excess of three day return = 11.11% - 1.06% = 10.05%
Excess of two day return = 5.26% - (-0.20%) = 5.46%
v. Result of other student
vi. Relevant theory
As there was no dividend payment for Altura Mining Ltd for the last five years,
consideration of relevant theory is irrelevant.

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Reference
Anwar, S., Singh, S., & Jain, P. K. (2016). Signalling power of cash dividend announcements
and risk: evidence from India. International Journal of Management Practice, 9(3),
257-281.
Floyd, E., Li, N., & Skinner, D. J. (2015). Payout policy through the financial crisis: The
growth of repurchases and the resilience of dividends. Journal of Financial
Economics, 118(2), 299-316.
Golden, J., & Kohlbeck, M. (2017). The Unintended Effects of Financial Accounting
Standard 123R on Stock Repurchase and Dividend Activity. Journal of Accounting,
Auditing & Finance, 0148558X17721087.
Kawano, L. (2014). The dividend clientele hypothesis: Evidence from the 2003 tax
act. American Economic Journal: Economic Policy, 6(1), 114-136.
Lai, H. H., Lin, S. H., Hsu, A. C., & Chang, C. J. (2017). SHARE REPURCHASE, CASH
DIVIDEND AND FUTURE PROFITABILITY. International Journal of
Organizational Innovation (Online), 9(3), 101C.