Question
In: Finance
Part a. A firm has $100 million in current liabilities, $200 million in long-term debt, $300...
Part a. A firm has $100 million in current liabilities, $200
million in long-term debt, $300 million in stockholders equity, and
total assets of $600 million. Calculate the firm's ratio of
long-term debt to long-term debt plus equity.
Part b. What is the likely impact on a typical individual investor
if a firm undertakes a stock repurchase in lieu of a cash
dividend?
Solutions
Expert Solution
Part a)
Current Liabilities = $100 million
Long Term Debt = $200 million
Stakeholders Equity = $300 million
Long Term Debt to Long Term Debt plus Equity = 200 / (200 + 300) = 200 / 500 = 40%
Part b) Impact of stock repurchase in lieu of a cash dividend
For an investor both are lucrative options dividend and share repurchase however share repurchase is a uncertain event and doesn't guarantee future returns however dividend has payout ratio and mostly company maintain that or increase the payout to investors.
Stock repurchase announcement give a major rise to the share price because repurchase decision reduces the outstanding shares and increases ratio performances like EPS, ROE, ROA etc..
In share buyback announcement investors has option to choose date for sale of share and can plan tax filling accordingly however in dividend same flexibility is not given to investors, they are suppose to file tax in respective financial year.
jeff jeffy answered 5 months agoRelated Solutions
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