In the finance world, we often hear shareholders and analysts discuss a firm’s capital structure and how it affects a company’s firm value. Apple Inc is the world’s most valuable firm according to Forbes leaving behind Microsoft and Google.Furthermore, the technology company scored an outstanding amount of $216 in cash from the First Quarter of 2016.But what really makes a company more valuable than its competitors?According to Miller and Modigliani irrelevance theory in a perfect capital market, the value of a firm is not affected by changes in the capital structure, which simply means that if a company use a combination of debt and equity financing its value remains the same.According to the theory the rate of return shareholders expects to receive an increase as the company’s debt to equity ration rises.
A good example of M&M theory is the pie model. The …show more content…
The firm announced that it would pay a quarterly dividend of $2.65 per share and spend £10 billion for share buybacks. Conforming to M&M theorem dividend policy does not affect the shareholder value. It is the firm’s investment policy and it’s future growth that forces shareholders value to increase. The second part of the firm’s strategy was a repurchase of its stock. The reasons why such a grown company would repurchase its stock vary but at that point of time it was due surplus cash and not because its stock was undervalued. A great advantage for the buyback over the dividends is that the first are taxed as part of capital gains taxes which are lower than dividend taxes.But Apple seemed to rise its share repurchase programme every year reaching $140 billion in 2015. In this situation what might lead Apple inc. increase the Capital Return programme is that the firm believes that the stock is
A good example of M&M theory is the pie model. The …show more content…
The firm announced that it would pay a quarterly dividend of $2.65 per share and spend £10 billion for share buybacks. Conforming to M&M theorem dividend policy does not affect the shareholder value. It is the firm’s investment policy and it’s future growth that forces shareholders value to increase. The second part of the firm’s strategy was a repurchase of its stock. The reasons why such a grown company would repurchase its stock vary but at that point of time it was due surplus cash and not because its stock was undervalued. A great advantage for the buyback over the dividends is that the first are taxed as part of capital gains taxes which are lower than dividend taxes.But Apple seemed to rise its share repurchase programme every year reaching $140 billion in 2015. In this situation what might lead Apple inc. increase the Capital Return programme is that the firm believes that the stock is