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FINS2615-Intermediate Business Finance - T2 2025
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Prada has nine million shares outstanding, generates free cash flows of $40 million each year and has a cost of capital of 10%. It also has $30 million of cash on hand. Prada wants to decide whether to repurchase shares or invest the cash in a project that generates free cash flow of $5 million each year. Should Prada invest or repurchase the shares?
Prada has 10 million shares outstanding, generates free cash flows of $50 million each year and has a cost of capital of 10%. It also has $50 million of cash on hand. Prada wants to decide whether to repurchase shares or invest the cash in a project that generates free cash flows of $5 million each year. Should Prada invest or repurchase the shares?
Palomino Enterprises has generated profits of $300 000 before tax. They wish to invest the money in Treasury bonds at 8% and use the returns to pay dividends to shareholders after a year. Alternately, they can pay a dividend and allow shareholders to make the investment. If corporate tax rates are 30%, which option would be preferred by shareholders paying a marginal tax rate of 45%?
If an investor sells a share for more than they
purchased the share for, the investor is subject to
Webster Holding Ltd is a company which owns a
number of fashion brands. If Webster Holding
makes a taxable profit of $1 000 000 in the 2016 financial year and chooses to
pay 100% of its profit after tax as a dividend, how much tax is paid by
shareholders, assuming their marginal tax rate is 45%? Assume the company tax
rate is 30%.
Webster Holding Ltd is a company which owns a
number of fashion brands. If Webster Holding
makes a taxable profit of $1 000 000 in the 2016 financial year and chooses to
pay 100% of its profit after tax as a dividend, how much is included in the
shareholders’ taxable income? Assume the company tax rate is 30% and is fully incorporated into the Australian imputation tax system.
When a firm repurchases shares the supply of shares is ________ but at the same time the firm’s assets
A firm has $300 million of assets that includes
$50 million of cash and 10 million shares outstanding. The firm uses $30 million of its cash to pay
dividends. If an investor has 1 000 shares, how many shares must he sell to
create a homemade dividend of $3 900?
When a firm pays out a dividend, the share price
________, and when it conducts a share repurchase at
the market price, the share price ________.
The Modigliani-Miller dividend irrelevance
proposition states that in perfect capital markets, holding ________ policy fixed, the firm’s choice of
dividend policy is irrelevant and does not affect the initial share price.