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According to the Wall Street Journal (WSJ), there was a wide-spread speculation in February




Question;Q#1.;According to the Wall Street Journal (WSJ), there was a wide-spread speculation;in February 2013 that Apple, Inc. (AAPL) would announce a 2-for-1 stock split;soon. Some of Apple?s large stock holders as well as some analysts and traders;believe that a 2-for-1 stock split would definitely benefit its current;shareholders and raise the firm?s overall market value. You read in chapter 14;that a 2:1 split would double the number of outstanding shares and half the;earnings and dividends per share, thereby lowering the stock price. From a;purely technical perspective, a 2:1 stock split simply provides additional;pieces of paper and should not affect the overall wealth of shareholders;(shares doubles, prices drop one-half). So you are puzzled why some shareholders;traders, and analysts adamantly believe that a 2:1 split will benefit Apple?s;shareholders. Please explain concisely whether or not a 2:1 split would benefit;Apple?s current shareholders with at least a 2-year investment (holding);horizon. You would want to use your understanding of chapter 14 stock split;material, especially the signalling aspects of stock splits, optimal stock;price range theory, past empirical evidence, and round lot stock purchase;arguments, in your explanation. Limit your answers to no more than ten (10);sentences.Q#2.;After the severe 2008 stock market crash, an increasing number of publicly;traded firms announced stock buyback (repurchase) programs. Please explain what;benefits or rationale, if any, firms see in stock repurchases when their prices;are down and how would investors react to these repurchase programs. You would;want to use your understanding of chapter 14 stock repurchase discussion in;your answers. Limit your answers to no more than ten (10) sentences.Q#3.;The M& M capital structure theories in chapters 15 and 26 persuasively;argue that the optimal debt is not a 0.0 % debt to equity ratio (i.e., no;debt). Table 15-1 (page 603 of text) shows that, consistent with M&M;theories, the average long-run debt to equity ratio in many different;industries ranges from 23% to 177%. Yet some technology firms, such as Microsoft;Google, and Apple, do not use any long-term debt or almost 0.0% LT debt. Please;explain whether it makes financial sense for such firms to use no debt. You;would want to use your understanding of capital structure material in chapter;15, especially signalling and asymmetric information theories, in your answers.;Limit your answers to no more than ten (10) sentences.Q#4.;Finance research has shown that managers of actually managed mutual funds or;exchange traded funds (ETF), on average, do not outperform the overall stock;market as measured by the S&P 500 index (Page 293 of your book). In some;years, more than 80% of fund managers were unable to beat the overall stock;market. The year 2013 is a good example when the S&P 500 yielded nearly 29%;return, which was better than the average return on all actively managed stock portfolios;with similar risk. (a) If you believe these results which seem to support;informational efficiency of equity markets in U.S., what would be your;investment strategy so that your average long-run returns are better than the;returns realized by more than 50% of professional money managers of actively;traded funds. Explain. (b) If equity markets are efficient and rational to a;larger extent, how would you explain the stock market bubbles of 2000 and 2008;in the presence of efficient markets. Please limit your answers to no more than;twenty (20) sentences.


Paper#44431 | Written in 18-Jul-2015

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