Firm A wants to return $10 million in cash to shareholders….

Firm A wants to return $10 million in cash to shareholders. Advisor Jack wants Firm A to pay out $10 million of cash as a dividend now.  Advisor Jane wants Firm A to spend $10 million repurchasing the firm’s stock at currently fair prices now.  If the firm chooses Jane’s course of action a) The repurchase choice will be preferred to the dividend choice by investors who are in high tax brackets and want to minimize taxes paid b) The firm’s stock price should usually be higher with the repurchase rather than the dividend choice after the cash is paid out c) With the repurchase choice instead of the dividend choice, the firm’s expected EPS (earnings per share) in the year ahead should be higher if the firm is expected to report positive net income d) all the above e) a) and b) f) b) and c) g) none of the above

Assume Congress passes a new law that raises taxes on indivi…

Assume Congress passes a new law that raises taxes on individual dividends and realized capital gains.   Assume the new law also increases the federal corporate tax rate from 21% to 28%.  Based on our knowledge of tradeoff theory, the theoretical impact of the new law would be for firms to a) Increase debt relative to equity from current levels  (higher (D/E) b) Decrease debt relative to equity from current levels (lower D/E) c) keep debt levels about the same (same D/E)

A firm has previously not issued secured debt.  If a firm de…

A firm has previously not issued secured debt.  If a firm decides to now seek loans that are secured by property of the firm, this may increase the odds of getting a loan and/or result in a lower interest rate on the loan because a) It facilitates better outcomes for lenders with respect to collection of money owed to the lender in bankruptcy b) Lenders who doubt the firm’s ability to pay off loans out of cash flows know that the property securing their loan can be sold to pay off the loan. c) all the above d) none of the above