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Copenhagen Business School FINANCE Corporate Quiz 5 1)Under the Modigliani-Miller assumptions a share repurchase by a company would: Decrease company value

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1. • None of the above.
2. Google Inc. would like to pay out a dividend but they want to avoid a drop in asset value. How could they do this?
   • Google could use their cash holdings to finance a cash dividend. As long as the cash dividend is smaller than the cash holdings then asset value would not decrease.
   • Google could repurchase shares. This would not change the share price and therefore asset value will remain unchanged.
   • Google could pay out a stock dividend. A stock dividend will not affect the asset value.
   • None of the above.
3. Modigliani and Miller (MM) show that under certain assumptions dividend policy is irrelavant. In reality dividend policy is important for firms. Why is there a difference between the MM theorem and reality?
   • MM assumes perfect information for all parties whereas in reality investors do not have perfect information about the firm.
   • The MM theorem assumes that investors are risk neutral whereas in reality investors are risk averse.
   • The MM theorem only considers a cash dividend whereas in reality the firm can choose another type of dividend.
   • None of the above.
4. A company has shares selling for $90 each. They have 2 million shares outstanding. The company decides to pay a 12.5 percent stock dividend. What will the share price be after the dividend has been paid?
   • $78.75
   • $80.00
   • $90.00
   • None of the above.