Question $4$

Two other interesting points brought up by Miller and Modigliani, as highlighted in Berk and DeMarzo $(2020)$ were that $$In perfect capital markets, investors are indifferent between the firm distributing funds via dividends or share repurchase$($p$.612)$ and that $$In perfect capital markets, holding fixed the investment policy of a firm, the firm$$s choice of dividend policy is irrelevant and does not affect the initial share price$($p$.614).$ Respond to this question by focusing on either dividend payout policy or the decision between stock repurchases and dividend payouts and illustrate how the assumptions made to support these axioms tend to oversimplify what occurs.

Question $5$

In Chapter $18,$ Berk and DeMarzo $(2020)$ illustrate the differences between the three main methods that corporations use for capital budgeting with leverage and within imperfect markets, which are: $($a$)$ The Weighted Average Cost of Capital $($WACC$)$ method, $($b$)$ The Adjusted Present Value $($APV$)$ Method, and $($c$)$ The Flow$-$to$-$Equity $($FTE$)$ Method. Compare and contrast the three different methods that we use for capital budgeting and highlight each method$$s strengths and weaknesses.

Question $6$

Berk and DeMarzo $(2020)$ indicate that $$With perfect capital markets, financial transactions neither add nor destroy value, but instead represent a repackaging of risk $($and therefore return$)($p$.515).$ Outline the general ideas embedded in the Miller and Modigliani propositions I and II and defend them but highlight any noteworthy caveats. Include at least two citations that support your response.