Time left 0:43:54The finance manager has to focus his attention on thefollowing aspects to maximise the shareholders wealthSelect one:O a. Procuring the funds at the lowest cost,Investing the funds in those assets, which aremore profitable and Distributing the dividendsto the shareholders to meet their expectationsO b. None of the optionsO c. Procuring the funds as and when necessary, atthe lowest costO d. Distributing the dividends to the shareholdersto meet their expectationsO e. Investing the funds in those assets, which aremore profitableNext page

The finance manager is associated with raising funds, investing them and finally distributing it to…

Answered: The finance manager has to focus his…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter9: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 6Q

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In a Modigliani and Miller world with no taxes, a 100% equity financed company has generated £1m cash flows this year. Consider three alternative policies: 1) pay £1m to shareholders as dividends, 2) buy back £1m worth of shares, 3) retain all cash flows. Determine which of the following statements is correct. The company's value is higher under policy 1 The company's value is higher under policy 2 Shareholders are indifferent between all three policies Shareholders are indifferent between policy 1 and policy 2, but prefer both policies to policy 3
The Fourth Corp. is evaluating extra cash dividends versus share repurchases. In either case, $6,675 will be spent. Current earnings are $2.8 per share and the stock currently sells for $67 per share. There are 1,500 shares outstanding. Ignore taxes and any information asymmetry in the financial market. Which of the following is correct? Group of answer choices Shareholder wealth is the same regardless of which payout policy is chosen. Shareholder wealth will be lower if the firm repurchases shares because shares outstanding is reduced as a result of the repurchase. Shareholder wealth will be lower if the firm pays extra cash dividends because share price is lower. Shareholder wealth will be higher if the firm repurchases shares because repurchases can boost share price.
I figured out everything except C. Please help me with C. Hewlard Pocket’s market value balance sheet is given. Assets Liabilities and Shareholders’ Equity A. Original balance sheet Cash $ 150,000 Debt $ 0 Other assets 950,000 Equity 1,100,000 Value of firm $ 1,100,000 Value of firm $ 1,100,000 Shares outstanding = 100,000 Price per share = $1,100,000 / 100,000 = $11 Pocket needs to hold on to $52,000 of cash for a future investment. Nevertheless, it decides to pay a cash dividend of $2.10 per share and to replace cash as needed with a new issue of shares. After the dividend is paid and the new stock is issued: a. What will be the price per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be the total value of the company? (Enter your answers in whole dollars, not in millions.) c. What will be the total value of the stock…
ANSWER ALL. PLEASE SHOW YOUR WORKING SOLUTIONS WITHOUT USING EXCEL. 1) Based on current market values, Shawn Supply's capital structure is 30% debt, 20% preferred stock, and 50% common stock. When using book values, capital structure is 25% debt, 10% preferred stock, and 65% common stock. The required return on each component is: debt,10% before tax; preferred stock, 11%; and common stock,18%. The marginal tax rate is 35%. What rate of return must Shawn Supply’s earn on its investments if the value of the firm is to remain unchanged? 2) Plants Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Plants Corp.'s after-tax cost of debt is 5.25%, preferred stock has a cost of 6.35%, and newly issued common stock has a cost of 14.05%. What is Plants Corp.'s weighted average cost of capital?
which one is correct please confirm? QUESTION 2 In the theoretical world of Miller and Modigliani, ____. a. a firm should pay out 100% of earnings as dividends to maximize shareholder wealth b. dividends are important only for their informational content c. dividends reduce investors’ uncertainty d. the marginal tax rates facing investors are the most important single determinant of dividend policy
In finance, as in accounting, the two sides of the balance sheet must be equal. we valued the asset side of the balance sheet. To value the other side, we must value the debt and the equity, and then add them together. as the firm levers up, how does the increase in value get apportioned between creditors and shareholders? Explain it 0% Debt/ 25% Debt/ 50% Debt/ 100% Equity 75% Equity 50% Equity Cash flow to creditors: Interest - $125 $250 Pretax cost of debt 5.0% 5.0% 5.0% Value of debt: (Int/Kd) Cash flow to shareholders: EBIT $1,485 $1,485 $1,485 Interest - $125 $250 Pretax profit Taxes (@ 34%)…
1. What are the company motives for declaring dividends or stock repurchase programs? 2. How would you argue for a significant increase in both dividends and repurchases instead of using the available cash to make investments, i.e. M&A? 3. Would the tax treatment of dividend income versus capital gains income affect the managers’ decisions to disburse cash via dividends versus stock repurchases?
Assume that Mr James wants to invest his savings in less risky financial instruments with minimum rate of return per annum. Therefore he invested his savings in some financial assets in which returns will be guarantee even if the company will be in losses also. The financial instruments purchased by Mr James is known as: O a. Preference shares b. Equity shares c. Partnership shares d. Debentures
Which one of the following statements apply only to preference shareholders and not to equity shareholders a. Shareholders risk the loss of investment b. Shareholders bear the risk of no dividends in the event of losses c. Shareholders usually have the right to vote d. Dividends are usually given at a set amount in every financial year
A. Stockholders can transfer wealth from bondholders. As a finance analyst, you are required to explain how the following actions by stockholders transfer wealth from bondholders. Again, in what ways can the bondholders protect themselves against these actions?i. An increase in dividendsii. A leveraged buyoutiii. Acquiring a risky business B. Why might the two (2) disciplinary mechanisms of shareholders against managers not work? C. Union Pacific Rail road reported net income of $770million after interest expenses of $320 million in a recent financial year. The corporate tax rate was 36%. It reported depreciation of $960 million in that year, and capital spending of $1.2billion. The firm also had $4billion in debt outstanding on the books, was rated AA (carrying a yield to maturity of 8%), and was trading at par (up from $3.8 billion at the end of the previous year). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book…
When treasury stock is purchased for cash at more than its par value, what is the effect on total shareholders equity under each of the following methods?
The company’s capital structure is as follows: Debt Weight 25%, Preferred Stock Weight 25%, Common equity Weight 50%. The cost of debt is 12%, the cost of preferred stock is 15% and the cost of common equity is 0.208. Calculate the company’s weighted average cost of capital. Select one: a. 0.1415 b. 0.0740 c. 0.1715 d. 0.1340 e. All the given choices are not correct

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