Meso - Corporate finance and asset-pricing
6 important questions on Meso - Corporate finance and asset-pricing
Two schools on dividends
- double tax
- tax rate > capital gains
firms with individual investors should pay lower dividends
How do you buy back stocks
open market purchases
privately negotiated repurchases
Why do you buy back stocks
increase earnings per share, all else equal
more tax-efficient than dividends
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Free cash flow theory
more repurchases = less need for cash
lower cost of capital
market reaction stronger for overinvesting firms
What are the characteristics of announcements
ROE = return on equity divided by total equity
DIV = dividends paid
The debt trade off
benefits
costs
- tax advantage
- discipline
Costs =
- debt increases bankruptcy costs
- debt creates agency costs
- reduce financial flexibility
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