Does the value of a firm depend on the payment of dividend

Reference no: EM133331772

Question (a) A software company has huge cash balance in its balance sheet. It is [4] planning to expand its business to new IT enabled services. However, share price of the company are falling. due to the resignation of its CEO. A bad market sentiment has affected the company a lot. First of all, financial institutions having a 58% of the company's shareholding are pressing hard to take some immediate steps to boost the falling share price. Secondly, many senior executives are leaving the company anticipating downsizing in the company. Lastly, the company being a leader in IT sector face a risk of takeover all the times. At this juncture the management of the company wants to use the extra cash either in a share buyback or an expansion to new business. The chairman feels that it will make a great impact on satisfying the stakeholders. However, if the company goes for both the decisions it will have to borrow money from the market. Suggest the management of the company what to do in this situation analyzing various aspects of the decision.

Question (b) Does the value of a firm depend on the payment of dividend? Analyze.

Reference no: EM133331772

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