Answer the following question:

Part A:

Jake Ltd., an all-equity firm, has 500,000 shares outstanding trading at $76 per share. It is considering either paying a dividend of $1.8 per share or instead using that cash to repurchase shares. If Jake Ltd. repurchases shares, what will be the number of shares outstanding after the share repurchase? Round your answer to the nearest integer (i.e., zero decimal places).

Part B:

Assuming a perfect world with no market imperfections such as taxes or taxes or financial distress costs, the M&M capital structure theory suggests that firms should borrow as much as possible in order to maximize the firm value.

a) True

b) False

Part C:

A firm should increase its leverage if it expects the future earnings to be highly volatile.

a) True

b) False