Consider a firm with a large amount of cash that it does not need for its existing operations. The cash is currently invested in Treasury bonds. The firm has an equity beta of 1.2, a debt beta of 0.3, and pays corporate taxes at a rate of 35 percent.
Suppose that the assumptions behind the Modigliani-Miller theorems hold, with the exception that interest payments are tax deductible from corporate income taxes.
In such an environment, if the firm uses its excess cash to repurchase shares, then (complete each sentence):
Its share price will ● rise ● fall ● stay the same
Its equity beta will ● rise ● fall ● stay the same
Consider a firm with a large amount of cash that it does not need for its existing operations. The cash is currently inv
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answerhappygod
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