Pretend you are the CFO of a company that has paid a steady dividend for the past forty years and your recently hired, brilliant, freshly minted UTA Finance graduate who managed to pass Advanced Business Financial Analysis sends you a text message on your mobile phone while you are in the middle of yoga class that reads: Dividends are irrelevant. Why don’t we quit paying them? On your way home from class and experiencing inner peace, you decide to prepare a response to your newest colleague, who many not know much about your company, but is well versed in theory. How would you reply?
2.) The new brilliant, freshly minted UTA Finance graduate, excited to have her text messages answered by a CFO who had experienced inner peace, follows her question with a suggestion that the company undertake to raise private equity for the purpose of purchasing all public shares. What reasons would she give for taking the company private?
3.) The CFO, having rejected the idea of the company going private, believes that a large share repurchase program funded by issuing long-term debt would please the shareholders and raise the stock price. Impressed with the vast knowledge of corporate finance exhibited by the brilliant freshly mined UTA Finance graduate, the CFO asks the graduate for her opinion on the share repurchase idea. Overconfident about her ability to criticize the CFO the brilliant graduate does not believe it is a good idea. What are her arguments?
4.) What information would the newly hired UTA Finance graduate need to provide the opinion (that would not damage the reputation of UTA)?
5.) Having agreed with the CFO’s idea for the share repurchase, the brilliant freshly minted UTA Finance graduate remembering what she just learned in FINA 4315, recommends two strategies below for raising the debt. What reasons did freshly minted UTA Finance graduate provide for considering each of the strategies?
· A 10- year Japanese yen denominated (Samurai) bond.
· A 10- year bond convertible into the company stock.
6.) What information will the she need on each of the two to select among the strategies?
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