Assignment_5_Dividend_and_Capital_Structure_Policies_A2.pdf

Assignment_5_Dividend_and_Capital_Structure_Policies_A2.pdf...

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Assignment 5: Dividend and Capital Structure Policies Please show all your work. Also make sure to put your full name on the first page of your completed assignment 1. (4 pts) Other things equal, what would you expect to happen to the share price of Elliott Electronics stock? Assuming a M&M World a. On the day of announcement of a dividend increase that is expected to be sustained? Share prices should increase by the value of the change in the dividend. New information about the sustainability of the new dividend is conveyed to shareholders. b. On the record date? Nothing out of the ordinary. After the ex-dividend date, the stock price should bounce randomly around a trend rate of growth of ࠵? " ࠵?࠵? as other information arrives randomly. c. On the ex-dividend date. The price should drop by the amount of the cash dividend per share as the total value of cash paid out reduces the value of the firm by that much. After that drop, it should bounce randomly around a trend rate of growth of ࠵? " ࠵?࠵? as other information arrives randomly d. On the day after the ex-dividend date. The ex-dividend date the stock price should bounce randomly around a trend rate of growth of ࠵? " ࠵?࠵? as other information arrives randomly. Explain each of your answers and the assumptions you are making. 2. (4) Many companies use stock repurchases to increase earnings per share. Does this affect the value of an all-equity firm? What about share price? Explain your answers. Does it matter if the firm has excess cash or not?
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  • Fall '16
  • Intel

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