ABC's managers are considering how to pay out $1 million excess cash. Assume perfect capital markets. Which of the following best describes their options? A) Use $1 million to pay dividend
B) Use $1 million to buy back shares
C) Issue $1 million equity and pay out a large dividend of $2 million
D) All three methods create the same shareholder value. Option I creates most value for shareholders. Option II creates most value for shareholders. Option III creates most value for shareholders. |