Questions from Corporate Finance

Q: Explain what the introduction of transaction costs does to the Modigliani and

Explain what the introduction of transaction costs does to the Modigliani and Miller assumption that dividends are irrelevant. Start with a firm that pays dividends to investors that do not want to re...

Q: CashCo increased its cash dividend each quarter for the past eight quarters

CashCo increased its cash dividend each quarter for the past eight quarters. While this may signal that the firm is financially very healthy, what else could we conclude from these actions?

Q: Undecided Corp. has excess cash on hand right now, although

Undecided Corp. has excess cash on hand right now, although management is not sure about the level of cash flows going forward. If management would like to put cash in stockholders’ hands, what kind o...

Q: A firm can deliver a negative signal to stockholders by increasing the

A firm can deliver a negative signal to stockholders by increasing the level of dividends or by reducing the level of dividends. Explain why this is true?

Q: A commentator on a financial talk show on TV says that “

A commentator on a financial talk show on TV says that “On average, firms pay out too little to stockholders. This is why stock prices go up with dividend increases and down with dividend decreases.”...

Q: What is the Internal Rate of Return (IRR) method?

What is the Internal Rate of Return (IRR) method?

Q: You own shares in a firm that has extra cash on hand

You own shares in a firm that has extra cash on hand to distribute to stockholders. You do not want the cash. What course of action would you prefer the firm take?

Q: Stock repurchases, once announced, do not actually have to occur

Stock repurchases, once announced, do not actually have to occur in total or in part. From a signaling perspective, why would a special dividend be better than a stock repurchase?

Q: Consider a firm that repurchases shares from its stockholders in the open

Consider a firm that repurchases shares from its stockholders in the open market, and explain why this action might be detrimental to the stockholders from whom the firm buys shares?

Q: You read that a number of public companies have been financing their

You read that a number of public companies have been financing their dividend payments in recent years entirely through equity issues. A colleague of yours argues that this only increase taxes paid by...