Suppose a firm finds itself as the target of a possible hostile takeover. An outside investor has acquired a major stake of shares and is threatening to exert influence on the broad.
1. If the firm wants to influence the hostile bodder to leave it alone, which of the following methods could be an effective way of doing so?
a. open market transaction
b. direct negotiation
c. auction
d. tender offer
2. If you were to look at a firm's distribution of cash to investors over time, which method of cash distribution is likely to be used if the firm goes through volatile business cycles?
a. stock repurchases?
b. Dividends
3. In a tax less world with no brokerage costs, repurchases and dividends have the same effect on shareholder wealth. In the real world, however, repurchases provide more preferable tax treament that dividend to ordinary investors. Does this mean that firms should always use share repurchases so that investors can gain from this tax benefit?
Yes or no?