EBK FUNDAMENTALS OF CORPORATE FINANCE A
EBK FUNDAMENTALS OF CORPORATE FINANCE A
10th Edition
ISBN: 9780100342613
Author: Ross
Publisher: YUZU
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Chapter 17.6, Problem 17.6ACQ
Summary Introduction

To discuss: Stock repurchases is better than an extra cash dividend.

Introduction:

A company buys its own stock for an exchange of cash is termed as stock repurchase. The company buys back shares whereas cash dividend is the distribution of a portion of company’s earnings to the shareholders.

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Scenario one: Under what circumstances would it be appropriate for a firm to use different cost of capital for its different operating divisions? If the overall firm WACC was used as the hurdle rate for all divisions, would the riskier division or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?
Scenario three: If a portfolio has a positive investment in every asset, can the expected return on a portfolio be greater than that of every asset in the portfolio? Can it be less than that of every asset in the portfolio? If you answer yes to one of both of these questions, explain and give an example for your answer(s). Please Provide a Reference

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EBK FUNDAMENTALS OF CORPORATE FINANCE A

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Dividend explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Wy7R-Gqfb6c;License: Standard Youtube License