3. Dividend policy Aa Aa E A firm\'s value depends on its expected free cash flo

Question

3. Dividend policy Aa Aa E A firm's value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases impact the firm's value and the investors in different ways. Consider the case of Green Mountain Producers Inc., and answer the question that follows: Green Mountain Producers Inc. is an oil drilling company that has some free cash flow that is not expected to be used for its growth or investment projects. The company plans to distribute the free cash flow to its shareholders but is still deciding whether the distribution should be made via a stock repurchase or the payment of cash dividends. Which method of cash distribution carries more informational content when its announcement is made: the cash dividends or the stock repurchase? (Hint: Think of the informational content of a firm increasing or decreasing its dividend relative to a firm announcing a stock repurchase.) O Dividends Stock repurchases Modigliani and Miller argued that each shareholder can construct his or her own dividend policy. This statement is: O False True

Explanation / Answer

1 stock repurchase

2 False

3 more relevant

4 informational content effect

5 clientenle effect

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