1. Novartis International, a Swiss multinational pharmaceutical company based in Basel, Switzerland, has made a huge profit from the sales of new atypical anti-psychotic medication. The CFO wants to return the cash back to investors, and he is considering whether he should pay dividends or make repurchase. The CFO asks for the opinion of an external consultant, who argues, Making repurchase allows you to reduce the share counts. If the firms future revenue does not change, then fewer share counts leads to higher EPS. As a result, we can expect higher stock price.

Comment on what the consultant has said.

2. Now the CEO wants to hire you as the new consultant. After some research, you find that another pharmaceutical firm is also researching the same medicine and will be able to launch a full scale production next year. Therefore, you suspect that the increased revenue is unsustainable. Bearing that in mind, will you suggest the CFO to make payout via dividends or repurchase? Why?