Suppose we lived in a different world, one in which NO corporations in Canada currently pay dividends. Do you think that a renegade firm in this world could increase its value by initiating a dividend payment, thereby making itself different from all the rest? Explain.

The question does not specify what the tax rules are relating to dividends, but most students generally assume the tax rules remain as they are currently in Canada. Most students will likely answer this question in the affirmative, supporting their position by citing the factors that encourage a high dividend payout such as the desire for current income, uncertainty resolution, and the tax and legal benefits from high dividends. In addition, some may argue that if there is an unsatisfied dividend clientele, the firm will benefit from initiating dividend payments. If any of these exist, then it is possible that the firm and its shareholders will benefit from making dividend payments.