Announcement of a dividend increase mean

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1. Does the good news conveyed by the announcement of a dividend increase mean that a firm can increase its stock price in the long run simply by paying cash dividends? Explain.

2. The WACC formula assumes that debt is rebalanced to maintain a constant debt ratio D/V. Rebalancing ties the level of future interest tax shields to the future value of the company. This makes the tax shields risky. Does that mean fixed debt levels (no rebalancing) are better for stockholders?

Reference no: EM133069355

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