Copenhagen Business School FINANCE Corporate Quiz 5 1)Under the Modigliani-Miller assumptions a share repurchase by a company would: Decrease company value. Have no effect on company value. Increase company value. None of the above. 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. 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

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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

Finance Jul 17, 2021

Copenhagen Business School

FINANCE Corporate

Quiz 5

1)Under the Modigliani-Miller assumptions a share repurchase by a company would:

- Decrease company value.
- Have no effect on company value.
- Increase company value.

- None of the above.
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.
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.
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.

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