For each question write between 300 and 500 words. Write all your answers in one Word document.

Question 1 (10 Marks)

An article on stock repurchases in the Los Angeles Times noted: An increasing number of companies are finding that the best investment they can make these days is in themselves.

Discuss this view. How is the desirability of repurchase affected by company prospects and the price of its stock?

Question 2 (10 Marks)

Empirical research found that there have been significant increases in stock price on the day an initial dividend (i.e., the first time a firm pays a cash dividend) is announced. What does this finding imply about the information content of initial dividends?