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Corporate Finance Analysis: Assignment

   

Added on  2021-06-16

4 Pages774 Words49 Views
Running head: CORPORATE FINANACE ANALYSIS 1CORPORATE FINANCE ANALYSISStudent NameInstitution

CORPORATE FINANCE ANALYSIS 2Corporate finance involves how a firm uses its free cash flow. It can retain it, or give payout to shareholders. If the firm decides to retain the free cash flow, it can invest in new projects or increase its cash reserves. However, if it decides to provide payouts, it can pay shareholders in terms of dividends or repurchase the shares. Therefore, this paper provides analysis of the concept of corporate finance.1.Targeted repurchase is process in which a firm purchases shares directly from a shareholder. 2.It is important for a firm to pay dividends instead of repurchasing shares because when a dividend is paid, the prices of the shares start to drop in a fair capital market. This happens when ex-dividend begins to be traded by the stock (Demarzo, 2013). However, when a firm repurchase shares in a fair capital market, there is no effect on the price of the stock. Therefore, it can signal to investors that the firm is not making progress and drive them away.3.The ‘dividend puzzle’ is a concept which entails rewards to firms paying dividends byinvestors. Some theorists believe that dividends should not be used by firms as incentives to trigger purchase of stock by investors. People who hold this opinion believe that the funds used to pay dividends should be invested in a company’s growth through re-investing the earnings through acquiring assets, starting a new project, or repurchasing shares (Schneider, 2017).4.Investors would have tax preference for share repurchases instead of dividends because share repurchases provide an effective way to return capital to parties that have invested in the company (Demarzo, 2013). This is because shareholders do not incur additional tax on repurchases even though there is an increase in pro-rata equity.Consequently, there is an increase in shareholders’ profits even if the overall profits orsales do not increase. However, dividends sometimes cause shareholders to receive

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