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C-1 CASE SOLUTIONS
CHAPTER 19
ELECTRONIC TIMING, INC.
1. The value of the company will decline by the amount of the dividend. Ignoring taxes, shareholders
2. The value of the company could increase or decrease. If the company is over-levered, paying off
debt can lower the interest rate on debt, and decrease financial distress costs. If there are no financial
4. A regular dividend payment is something the company should probably not undertake. A company
5. The implication is that the company should not retain earnings unless the ROE of the new project is
greater than the shareholders required return on equity. This is an intuitive result. Shareholders want
6. The decision does depend on the organizational form of the company. Money paid to shareholders of
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