the student will be able to:

• Show why capital structure does not affect firm value in perfect capital markets.
• Show why the tax system encourages debt finance and calculate the value of interest tax shields.
• Show how costs of financial distress can lead to an optimal capital structure.
• Explain why financial slack is valuable and might influence optimal capital structure.

• Describe how dividends are paid and how corporations decide how much to pay.
• Explain how stock repurchases are used to distribute cash to investors.
• Explain why dividend increases and repurchases are good news for investors and why dividend cuts are bad news.
• Explain why payout policy would not affect shareholder value in perfect and efficient financial markets.
• Show how market imperfections, especially the different tax treatment of dividends and capital gains, can affect payout policy.

4.2- Reading

Read the following to prepare for this week:

• Chapter 16
• Most Recent [Selected Company] Form 10-K at http://www.sec.gov/edgar/searchedgar/companysearch.html

Read the following to prepare for this week:

• Chapter 17

4.3 -Test your Knowledge (Question):

1-What is the goal of the capital structure decision? What is the financial manager trying to do? (Words- 100 to 150 )

2- What are the four main ways to implement stock repurchase? (Words-100 to 150 )

4.4 Instructions

• Answer the question in the test your knowledge section.
• Post your answer in the discussion board using the discussion link available at BB (Week-4 : Interactive learning Discussion)