Company X generated cash flows of £20m in the last year. The company has budgeted £12m for various investment projects. At the last executive committee meeting, the CEO proposed to pay the £8m surplus as dividend, arguing that this was the best way to boost the company’s share price. Other directors replied that a share buyback would be more effective in raising the share price. The CFO suggested instead that the surplus be temporarily invested in liquid financial assets and be made available in case of new investment opportunities. In no more than 200 words evaluate these proposals using Corporate Finance theory.
Company X generated cash flows of £20m in the last year. The company has budgeted £12m for various investment projects. At the last executive committee meeting, the CEO proposed to pay the £8m surplus as dividend, arguing that this was the best way to boost the company’s share price. Other directors replied that a share buyback would be more effective in raising the share price. The CFO suggested instead that the surplus be temporarily invested in liquid financial assets and be made available in case of new investment opportunities. In no more than 200 words evaluate these proposals using Corporate Finance theory.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Company X generated cash flows of £20m in the last year. The company has budgeted £12m for various investment projects. At the last executive committee meeting, the CEO proposed to pay the £8m surplus as dividend, arguing that this was the best way to boost the company’s share price. Other directors replied that a share buyback would be more effective in raising the share price. The CFO suggested instead that the surplus be temporarily invested in liquid financial assets and be made available in case of new investment opportunities. In no more than 200 words evaluate these proposals using
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education