EBK PRINCIPLES OF CORPORATE FINANCE
EBK PRINCIPLES OF CORPORATE FINANCE
12th Edition
ISBN: 9781259358487
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 16, Problem 24PS
Summary Introduction

To determine:  The whether the firm value is got affected by the choice between dividends and repurchases.

The share repurchase is the strategy by which companies will take back or buy back its own shares from the market place. If the management considered the shares are undervalued the company may buy back its shares.

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Inferior Investment Alternatives Although investing requires the individual to bear risk, the risk can be controlled through the construction of diversified portfolios and by excluding any portfolio that offers an inferior return for a given amount of risk. While this concept seems obvious, one of your clients, Laura Spegele, is considering purchasing a stock that you believe will offer an inferior return for the risk she will bear. To convince her that the acquisition is not desirable, you want to demonstrate the trade-off between risk and return. While it is impractical to show the trade-off for all possible combinations, you believe that illustrating several combinations of risk and return and applying the same analysis to the specific investment should be persuasive in discouraging the purchase. Currently, U.S. Treasury bills offer 2.5 percent. Three possible stocks and their betas are as follows: 1. What will be the expected return and beta for each of the following portfolios? a.…
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