Assessment #2 Take-home, Due Fri Mar 25, 2023, Ch. 18, 20-22 Chapter 18 Pay-out Policy Pay-out policy refers to the ways in which firms return capital to their equity investors. Pay-outs to equity i the form of either dividends or share buybacks/repurchases. The modern study of pay-out policy is ro irrelevance propositions developed by Nobel Laureates Merton Miller and Franco Modigliani. The irrel propositions clearly delineate the conditions under which the method and pattern of the firm's pay-outs are the sense that the firm's pay-out decisions do not alter firm value. Miller and Modigliani show that pay. irrelevant when capital markets are perfect, when there is no asymmetric information, and when the firm' policy is fixed. In practice, however, pay-out policy follows systematic patterns, and that firm value respond in pay-out policy in predictable ways. I Apple stock, of which you own 100 shares has just split three for two. Its market price before the split was $30 p discuss what you would expect to happen with this stock and your ownership interest. RUBRIC: 100% answer sample The three-for-two split means that you and other owners will receive one newly issued share for every two that yo own. Thus, your holdings will increase from 100 to 150 shares. However, the assets of the firm and its investment have not been altered. Therefore, it would be logical to expect that the market price per share would fall to $20. 1 seen in that three shares at the new price of $20 would precisely equal two shares at the old price of $30. To the e market price does not settle at this theoretically expected level, the investors are "winners" or "losers." But that is or loss in this process. Answer the remaining 4 questions below. MS Word, no set word count. Individual or pairs. Teams get same grade. 2 Show that a stock repurchase is conceptually the same as a cash dividend using the following example: Intel has outstanding at a market price of $20 per share. In debating whether to declare a 5% cash dividend, the directors in repurchase 50 of the outstanding shares. B Discuss the concept of dividend signalling. Compare and contrast share repurchases with dividend pay-outs