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The Wall Street Journal (October 5, 2009) reported that analysts are worried about companies borrowing money to pay dividends and to repurchase outstanding shares of stock. Aircraft parts manufacturer TransDigm Group borrowed $360 million to pay dividends, while Intel Corporation borrowed $1.5 billion to buy back shares of stock. These concerns of analysts are not new; in March 2007 the Wall Street Journal reported two instances of borrowings-for-dividends (Rexnord Corporation and Scotts Miracle-Gro) that sparked concerns. Companies have defended the actions, often citing historically low borrowing costs.
REQUIRED:
Discuss how the above transactions affect the basic accounting equation for the companies involved. What risks are posed when a company pursues such a strategy? What are the benefits of such a decision?
The Chicago bank has agreed to process Jackson's customer payments for an annual fee of $130,000. Determine the annual net pretax benefits to Jackson's of establishing a lockbox system with the Chicago bank.
discuss four 4 advantages and four 4 disadvantages accruing to a company that is traded in the public securities
When he first wrote the goal in December, his balance was $2,500. It is now April, and he can pay all except $200. Evaluate his progress and describe the results in one to two sentences.
Multiple choice questions using dividend discount model - what growth rate in dividends must be expected and what is Gold's stock worth to you
Calculate each income statement item for 2009 as a percent of the 2009 sales level. Make the same calculations for 2010. Determine which cost or expense items varied directly with sales for the two-year period.
the buffalo snow shoe company is considering manufacturing radial snow shoes which are more durable and offer better
FIN 4424 Fall 2016 - Valuation of three kinds of business debt, Structuring municipal debt that has a sinking fund and Prevailing current interest rate data
The firm pays out all earnings as dividends; hence, its stock is a zero growth stock. Its current cost of equity, rs, is 14 percent. If it increases leverage, rs will be 16 percent. If it decreases leverage, rs will be 13 percent. What is the firm's ..
What will your annualized holding period return (HPR) on this investment be if you hold the bond for 6 years.
Calculate the Revised Portfolio beta riskiest beta replaced by risky fewer betas and who believes the economy is slowing down
six-month t-bills have a nominal rate of 7 while default free japanese bonds that mature in 6 months have a nominal
Calculate the price of a 4-month European call option on a dividend-paying stock with a strike price of $30 when the current stock price is $34, the risk-free rate is 6% per annum and the volatility is 40% per annum. A dividend of $1.00 is exp..
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