SYLLABUS FOR F303 INTERMEDIATE FINANCE - SPRING 1997

Professor:	Craig W. Holden	Michael Mysker	Gerard J. Wedig
Office:	BU 356C	BU 307, #33	SPEA 441
Office Hours:	Mo,Tu,We,Th, 2:30-3:30 or drop by any time!	We, 9:00-12:00	Tu, Th, 4:00-5:00 Fr, 10:00-12:00
Phone:	855-3383	855-9721 – during off. hrs. 333-2725 – other times	855-2783

COURSE DESCRIPTION

Welcome to the start of the finance major! This course develops higher-level thinking skills in the core concepts of finance. It builds a foundation for all of the 400-level finance electives. It may surprise you to learn that we will not focus on memorizing formulas or solving problems in a mechanical way. Instead, this course will stress thinking skills that are above the rote level!

Let’s talk about what it means to be educated. An educated person does not memorize facts or solve problems like a robot. Rather, an educated person exhibits three types of higher-level thinking skills:

1. The meaningful level. The ability to truly comprehend an idea. For example,

• explain an idea in your own words using everyday language
• translate an idea between its expression in words, graphs, and math.

1. The integrated level. The ability to interconnect concepts within the material. For example,

• create your own links between ideas
• determine the fundamental ways in which ideas are similar or different.

1. The critical thinking level. The ability to use ideas learned in one context to solve problems in a new situation. For example,

• figure out what the problem is and apply the appropriate analysis, despite ambiguity about the situation and incomplete information.

To develop these higher-level thinking skills, the class will make extensive use of in-class group learning exercises (see the teaching methods section) and four out-of-class projects. For example, some group exercises will ask students to explain complex financial ideas in your own words using everyday, but accurate language. Exams will also stress the ability to comprehend, not merely memorize, ideas.

We have set three additional goals for each student to develop:

1. Applied spreadsheet skills for financial modeling. Spreadsheets are the primary instrument used in most real world finance positions, such as financial analysts, credit analysts , security analysts, etc. The course has two spreadsheet-based individual projects and two spreadsheet-based team projects.

2. Slide show presentation skills. Electronic slide show presentations are a central communication skill in business. The course contains one in-class slide show presentation.

3. Small group communication skills. Developing skill and confidence in group work is crucial. This course involves two team projects to give you additional experience with group processes.

COURSE OUTLINE

PART I: INTERMEDIATE INVESTMENTS

UNIT A: EQUITY SECURITIES AND INDIVIDUAL PORTFOLIO OPTIMIZATION

1a	1/14	Syllabus and Introduction Investors and the Investment Process	BKM Chapter 4
1b	1/16	Risk and return Asset allocation	BKM Chapter 5, 6
2a	1/21	Diversification demo Explanation and computer demo of Project 1	BKM Chapter 19 & Appendix
2b	1/23	Optimal CAL and Efficient Frontier Asset Categories Computer demo: Portfolio Optimization	BKM Chapter 6, 19
2c	1/24	Optional computer lab for Project 1, 1:00-5:00 p.m., in BU415, BU417, BU419, and PV151.
3a	1/28	Project 1 is due Explanation of Project 2 Unit A Review (last 15 minutes)
3b	1/30	Efficient Market Hypothesis 1987 Int’l. Market Crash and Empirical Anomalies Mutual Fund Performance	BKM Chapter 8
3b2	1/30	Unit A Departmental Quiz, 7:00-9:00 p.m, in BU 201, BU 211, and BU 306

UNIT B: FIXED-INCOME SECURITIES

4a	2/4	Bond Annuity Formulas in Excel Yield to Maturity The Yield Curve	BKM Chapter 9
4b	2/6	Corporate Bond Yields and Ratings Computer demo: Term structure dynamics	BKM Chapter 9
5a	2/11	Junk bonds Interest Rate Risk by Coupon Rate and Maturity Duration and Interest Rate Risk	BKM Chapter 10
5b	2/13	Passive Bond Management Unit B Review (last 15 minutes)	BKM Chapter 10
5b2	2/13	Unit B Departmental Quiz, 7:00-9:00 p.m, in BU 201, BU 211, and BU 306

UNIT C: DERIVATIVE SECURITIES AND NO ARBITRAGE PRICING

6a	2/18	Introduction to Derivatives Payoff and Profit Diagrams	BKM Chapter 15
6b	2/20	Slide Show Presentations of Project 2
7a	2/25	No Arbitrage Framework Binomial Option Pricing Model Put-Call Parity	BKM Chapter 16
7b	2/27	Black-Scholes Formula Cumulative Normal Numerical Examples	BKM Chapter 16
8a	3/4	Computer demo: Black-Scholes Sensitivities Explanation and computer demo of Project 3 Unit C Review (last 15 minutes)	BKM Chapter 16
8b	3/6	Futures Basics Spot-Futures Parity Futures Vs. Forwards	BKM Chapter 17
8b2	3/6	Unit C Departmental Quiz, 7:00-9:00 p.m, in BU 201, BU 211, and BU 306
8c	3/7	Optional computer lab for Project 3, 1:00-5:00 p.m., in BU415, BU417, BU419, and PV151.

PART II: INTERMEDIATE CORPORATE

UNIT D: THE VALUATION FRAMEWORK AND THE COST OF EQUITY

9a	3/11	Balance Sheet Valuation Methods Market-based Valuation Methods	BKM Chapter 12
9b	3/13	Project 3 is due Financial Statement Analysis	BKM Chapter 13
	3/17- 21	SPRING BREAK
10a	3/25	NPV and Cash Flow Projection Explanation and computer demo of Project 4
10b	3/27	CAPM Introduction CAPM Assumptions Four Key Results	BKM Chapter 7
11a	4/1	CAPM Examples Security Alphas Unit D Review (last 15 minutes)	BKM Chapter 7
11b	4/3	Implementation of the CAPM CAPM Empirical Evidence GLIDES97 Results
12a	4/8	No Class Due to Evening Quizzes
12a2	4/8	Unit D Departmental Quiz, 7:00-9:00 p.m, in BU 211, BU 306, and BU 423

UNIT E: CAPITAL STRUCTURE AND DIVIDEND POLICY

12b	4/10	The Cost of Capital	RWJ Chapter 14, 15
13a	4/15	M&M Propositions	RWJ Chapter 15
13b	4/17	More M&M Bankruptcy
14a	4/22	Agency Costs Signaling
14b	4/24	Dividend Controversy Dividend Policy in Practice Unit E Review (last 15 minutes)	RWJ Chapter 16
15a	4/29	Slide Show Presentations of Project 4
15b	5/1	No Class Due to Evening Quizzes
16	5/8	Departmental Final, Thursday, May 8, 10:15-12:15, Room will be announced (Unit E departmental quiz and F303 global objectives)

KEY DATES

Date	Activity
1/24	Optional computer lab for Project 1, 1:00-5:00 p.m., in BU415, BU417, BU419, and PV151.
1/28	Project 1 is due, Unit A Review (last 15 minutes)
1/30	Unit A departmental quiz, 7:00-7:45, 7:45-8:30 p.m, in BU 201, BU 211, and BU 306
2/13	Unit B Review (last 15 minutes)
2/13	Unit B departmental quiz, 7:00-7:45, 7:45-8:30 p.m, in BU 201, BU 211, and BU 306
2/20	Project 2 presentation and written report
3/4	Unit C Review (last 15 minutes).
3/7	Unit C departmental quiz, 7:00-7:45, 7:45-8:30 p.m, in BU 201, BU 211, and BU 306
3/7	Optional computer lab for Project 3, 1:00-5:00 p.m., in BU415, BU417, BU419, and PV151.
3/13	Project 3 is due
4/3	Unit D Review (last 15 minutes).
4/8	Unit D departmental quiz, 7:00-7:45, 7:45-8:30 p.m, in BU 211, BU 306, and BU 423
4/23	Project 4 presentation and written report
4/24	Unit E Review (last 15 minutes).
5/8	Departmental final = Unit E departmental quiz + F303 global learning objectives exam, Thursday, May 8, 10:15-12:15, Room will be announced

SPREADSHEET-BASED INDIVIDUAL PROJECTS

• Project 1: Ex-Ante Portfolio Formation. Given five years of data on international stock indices, calculate the means, standard deviations, and correlations using the built-in spreadsheet functions. Calculate value-weights, equal-weights, and precision-weights. Enter these inputs into the Excel-based Interactive Optimizer and interpret the results using a mean - standard deviation graph, a graph of optimal risky portfolio weights, and the weights of various portfolios.

• Project 3: Option Prices and Volatilities. Based on the famous Black-Scholes formula, calculate and graph the value of a European calls and puts using the built-in spreadsheet functions, such as the cumulative normal. Using actual European stock index option data, calculate the implied volatilities using the solver module and graph the "smile" pattern of implied volatility.

SPREADSHEET-BASED TEAM PROJECTS

• Project 2: Lifetime Financial Plan. Develop a lifetime financial plan designed to meet the consumption, home/business ownership, and retirement needs for a particular client taking into account their life-cycle saving needs, taxes, risk preferences, and investment opportunities. Forecast key financial variables and decide on investment strategies. Half of the teams will make a "sales presentation" to attract clients.

• Project 4: Corporate Valuation and Financial Risk. Given the actual 10K financial statement for a firm, each team will project the firm’s cash flows in Europe, Asia, and the Americas, value the firm, and then calculate firm’s exchange rate exposure with respect to the DM and JY. Half of the teams will present their findings to the firm’s "board of directors."

GRADING

Projects: Ex-Ante Portfolio Formation (Individual) . . . . . . Lifetime Financial Plan (Team): o Substance of report . . . . . . . . . . . . . . . . . o Exposition of the report . . . . . . . . . . . . . Options Prices and Volatilities (Indiv.) . . . . . . . . Corporate Valuation and Financial Risk (Team): o Substance of report . . . . . . . . . . . . . . . . . o Exposition of the report . . . . . . . . . . . . . Slide Show Presentation of 2 or 4 (Team) . . . . . .	30 points 20 points 20 points 30 points 20 points 20 points 20 points
Departmental Quizzes: Unit A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40 points 40 points 40 points 40 points
Departmental Final:
Unit E Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F303 Global Learning Objectives Exam. . . . . . .	40 points 40 points
Total	400 points

GRADE POLICY AND REPORTING

Grading is done on a relative (not absolute) basis. Following standard finance department policy, the average GPA will fall between 2.70 and 2.90. The class curve is based on total points for the course. In weeks 9 and 15, a rough indication of how cumulative points translate into grades will be given.

When we are done grading a particular project or exam, we will post grades for all five sections to the POST’EM GRADE REPORTING SYSTEM and we will send out a global e-mail announcing that they are available. You can access your individual grades from Netscape or any other web browser by:

1. going to the web address: http://www.best.indiana.edu/cgi-bin/mygrades
2. entering you Network I.D. and password
3. selecting F303 and
4. pressing the See my Grades button.

F303 HOME PAGE

F303 has a home page at the web address: http://www.bus.indiana.edu/finweb/f303home.htm From the F303 home page, you will be able to:

1. download datasets that you will need for various class projects,
2. get information about the aggregate point distribution on projects and quizzes, and
3. get other miscellaneous information.

TEXTBOOKS

Essentials of Investments, Second Edition by Bodie, Kane, and Marcus

Fundamentals of Corporate Finance (Chapters 14, 15, and 16) by Ross, Westerfield, and Jordan

TEACHING METHODS

1. Structured Groups. This is a group learning method in which the use of time is structured so that everyone will have time to think and all members will participate. There are three phases:

• Think Phase (about 20% of the time) – everyone stops to think about the problem
• Share Phase (about 20% of the time) – each group member briefly shares their view
• Discuss Phase (about 60% of the time) – the group discusses and the designated group reporter prepares to explain the group’s conclusion and reasons.

The teacher calls on several of the groups to present their results and provides constructive feedback.

1. TAPPS = T(hinking) A(loud) P(aired) P(roblem) S(olving). This is a two-person learning method in which there are two roles:

• Explainer – explains the concept or exercise
• Listener – listens and asks clarifying questions, disagrees, or gives hints.

TAPPS starts with a Think Phase (just like the Nominal Group Method above), next there is an Explainer-Listener Interaction Phase, and finally the teacher calls on several pairs to present their results and provides constructive feedback.

1. Two Minute Paper. At the end of most classes, we will ask you to write a two minute paper based on one of the following questions:

• what is the most important point I made in class today?
• what is one idea you still do not understand?
• what connection can you find between one of the ideas we talked about today and an idea that we have discussed in a previous class?
• how could this class have been better?
• how could a specific innovation that we tried today have been more effective?

1. Group Compare and Contrast Table. Each group constructs a table in which the columns are items to be compared and each row is a "basis" of comparison. Each cell contains a "factoid" for that item and that basis of comparison. For example:

Basis	Stock	Bond
Vehicle for the firm to raise money?	Yes	Yes
Vote for the board of directors?	Yes	No

5. Thumbs Up / Thumbs Down. In the middle of class, we will ask everyone to "vote" thumbs up or thumbs down on what they think about a particular question or issue. Each person will be asked to display a visible sign of their up or down vote and be prepared to justify their position should they be called on.

POLICIES

1. Bring a calculator to every class session. It will be useful when we do live group exercises in class.

2. Class attendance is strongly encouraged. We fully appreciate the fact that job interviews will occasionally conflict with class periods, but your efforts to minimize this conflict are greatly appreciated.

3. We will try to stick to the schedule, however, it may be necessary to make adjustments.

4. We expect students to be ready for class at the scheduled time. We will start class exactly on time. This policy avoids the problem of having people wander in late and not being able to pick up what is being discussed.

5. One class before the review for each unit quiz, we will pass out a list of unit learning objectives. This list defines the universe of possible questions on the unit quiz. Learning objectives may added, dropped, or modified.

6. Each week that one of the two individual spreadsheet-based projects is initiated, we will staff a computer lab on Friday from 1:00-5:00 to help you and to answer your questions.

7. A list of end-of-chapter practice problems will be distributed. The answers to these problems are on reserve in the library.

8. Calculators are allowed and encouraged for exams.

9. Confidential peer evaluations of individual contributions to group projects will made. Individuals who have contributed significantly more or significantly less than the group average will be rewarded or penalized accordingly. The purpose of the peer evaluations is to provide direct incentives for individual contributions on the group projects.

BUSINESS SCHOOL PROGRAM OBJECTIVES

This course helps you to achieve learning objectives that have been set for the schoolwide program. Specifically:

1. Group Work -- A major element of the coursework is two team projects.
2. Presentations -- A major element of the coursework is a class presentation by the team.
3. Ethics -- The ethics and legalities of trading on private information will be discussed.
4. International -- The problem of individual investment optimization will be fundamentally rooted and developed in international context all the way. Exchange rate risk will be carefully explained. In the derivatives section, foreign currency options and futures will be explained. Both of the team projects are set in the international context.
5. Computer Applications -- The course emphasizes developing applied spreadsheet skills for financial modeling and developing slide show presentation skills. Two individual projects and two team project will all be spreadsheet-based. The class presentation will use slide show presentation software.

GLOBAL LEARNING OBJECTIVES

Ten years from now, we expect you to remember how to do the following:

1. Characterize the historical relationship between mean return and standard deviation of return for various asset classes.

2. Explain what diversification is and why it is such an important investment strategy.

3. Forecast the means, standard deviations, and correlations of various asset classes based on historical data and use an interactive optimizer to calculate the weights of the optimal portfolio.

4. Explain the three different forms of the efficient market hypothesis and be able defend you opinion of whether the market is efficient or inefficient for each form.

5. Explain what duration is and why duration is a measure of interest rate risk.

6. Use the replication step and the valuation step to price derivative securities.

7. Explain what expected free cash flow is and use the WACC method to value a firm.

8. Explain the CAPM prediction for the relationship between expected return and systematic risk and characterize the empirical factors which explain the cross-section of expected return.

9. Explain what Modigliani and Miller Propositions I and II are (both with and without taxes) and why they are important explanations of optimal capital structure.

10. Explain what factors make dividend policy relevant and why.

DETAILED LEARNING OBJECTIVES

PART I: INTERMEDIATE INVESTMENTS

UNIT A LEARNING OBJECTIVES

BKM Ch. 4	Explain in your own words (IYOW) what is personal trust, mutual fund, endowment fund, pension fund, liquidity, investment horizon, and the "prudent man" law. Distinguish between a defined contribution plan vs. a defined benefit plan. Explain (IYOW) what the similarities and differences are between a Keogh plan, 401(k) plan, 403(b) plan, and an individual retirement account. Explain (IYOW) the typical patterns of an individual investor’s lifecycle: (1) the major uses of investment funds, (2) when money is saved and when it is used, and (3) how risk aversion changes by age. Explain (IYOW) who is proscribed from doing what by the insider trading laws. Calculate the amount of savings at retirement of a plan which has: no tax deferral and invests after-tax money, tax deferral and invests after-tax money, and tax deferral and invests before-tax money.
BKM Ch. 5	Explain (IYOW) what is holding-period return, real return, risk premium, complete portfolio, and capital allocation line. Based on long-term historical data on US securities, characterize: the real return on the riskfree asset (short-term government bonds) and on risky assets (long-term government bonds, and stocks) the risk premium on risky assets (long-term government bonds and stocks) Given one risky asset and one riskfree asset, calculate the complete portfolio’s mean and standard deviation. Graph and specify the equation for the capital allocation line. Calculate the Sharpe Ratio and explain (IYOW) the intuition for why this is a measure of portfolio performance.
BKM Ch. 6	Explain (IYOW) what is diversification, correlation coefficient, investment opportunity set, minimum variance portfolio, efficient frontier of risky assets, optimal risky portfolio, optimal capital allocation line, value-weights, equal-weights, and precision-weights. Graph the investment opportunity set for two risky assets with various correlation coefficients and Explain the relationship between the correlation coefficient and the size of opportunity to benefit by diversification. Characterize the approximate magnitude of the correlation coefficients between major stock markets around the world. Explain the qualitative features of the optimal risky portfolio (including the intuition): when the risky assets have the same standard deviation and different means when the risky assets have the same mean and different standard deviations when one risky asset is underpriced when one risky asset is overpriced. Given historical data on many risky assets, calculate the means, sample standard deviations, and correlations of these assets. Given a value index, an equal index, and a precision index, calculate the value-weights, equal-weights, precision-weights. For any set of portfolio weights, calculate a portfolio’s mean and standard deviation. On one graph, draw the efficient frontier of risky assets, the minimum variance portfolio, the optimal capital allocation line, the optimal risky portfolio, and the complete portfolio for different risk aversions.
BKM Ch. 8	Explain (IYOW) what is random walk, efficient market hypothesis, technical analysis, and fundamental analysis. Explain (IYOW) what the three different forms of the efficient market hypothesis (EMH) are. Describe what form of EMH violations that technical analysts are looking for and what form of EMH violations that fundamental analysts are looking for.

UNIT B LEARNING OBJECTIVES

BKM Ch. 9

Explain (IYOW) what is bond, yield-to-maturity, treasury bill, treasury note, treasury bond, treasury strips, zero coupon bond, yield curve, term structure of interest rates promised yield, expected yield, default premium, investment grade, speculative grade, and junk bonds. Calculate the price of a coupon bond. Explain (IYOW) whether a bond has more or less interest rate risk (sensitivity) with a longer time to maturity and why. Describe the empirically observed features of the yield curve with regard to: shape, level, curvature, sudden jumps, volatility of short rates versus long rates, curvature of rates under 1 year, and curvature of rates over 25 years. Explain the purposes and rating scales of corporate bond rating services.

BKM Ch. 10

Explain (IYOW) what is duration, modified duration, immunization, target date immunization, and net worth immunization Describe the key intuition for what duration is and the key intuition for why duration is a measure of interest rate risk. Given a bond’s coupon rate, coupon frequency, maturity, and yield, calculate the bond’s duration and modified duration. Calculate the duration of a bond portfolio. Describe how a company can immunize its bond portfolio.

UNIT C LEARNING OBJECTIVES

BKM Ch. 15	Explain (IYOW) what is call, put, european option, american option, in-the-money, at-the-money, and out-of-the-money. Specify the payoff at maturity and graph the payoff and the profit for: buying a call, selling a call, buying a put, and selling a put. Specify if a call and a put get more valuable or less valuable for: a higher exercise price, a longer maturity, and a higher volatility of the underlying asset.
BKM Ch. 16	Explain (IYOW) what is replicating portfolio and implied volatilities. Describe how to determine the price of a call given the price of a stock and a riskfree asset by the no arbitrage approach. Calculate the price of a call, put, or any derivative security using the single period binomial model. Calculate and graph the intrinsic value of calls and puts. Calculate and graph the Black-Scholes prices of calls and puts. Use the no arbitrage approach to show how a stock and a bond can replicate a call minus a put and how this leads to put-call parity. Given all but one variable, use put-call parity to calculate the remaining variable.
BKM Ch. 17	Explain (IYOW) what is long futures/forward position, short futures/forward position, futures/forward price, initial margin, and maintenance margin. Specify the payoff at maturity and graph the payoff and the profit for: long futures/forward position and short futures/forward position. Show how a stock index and a bond can replicate a stock index futures contract and how this leads to spot-futures parity (the cost of carry formula). Given all but one variable, use spot-future parity to calculate the remaining variable. Describe the three most important differences between futures and forwards.

PART II: INTERMEDIATE CORPORATE

UNIT D LEARNING OBJECTIVES

BKM Ch. 12	Explain (IYOW) what is intrinsic value, dividend discount model, no-growth dividend discount model, constant growth dividend discount model, liquidation value, book value, replacement cost, Tobin’s q, market capitalization rate, dividend payout rate, earnings retention ratio, and return on equity. Calculate the value of a firm using the intrinsic value or dividend discount model. Calculate the growth rate of dividends from the return on equity and plowback ratio. Using the constant growth dividend discount model, given three of the four variables calculate the fourth. Calculate the present value of growth opportunities for a firm.
BKM Ch. 13	Explain (IYOW) what is return on equity, return on assets, current ratio, quick ratio, interest coverage ratio, and price/earnings ratio. Use a firm’s financial statements to calculate and interpret financial ratios.
WACC Method of Firm Valuation	Explain (IYOW) what is EBIT, NOPLAT, net working capital, continuation or terminal value, and free cash flow. Calculate the value of a company from its financial statements. This includes knowing how to treat non-cash flows, such as depreciation, how to calculate the change in net working capital, and how to calculate the continuation value.
BKM Ch. 7	Explain (IYOW) what is market portfolio, capital market line, security market line, alpha, index model, and characteristic line regression. Describe the following frameworks: equilibrium, individual optimality, and no arbitrage. Compare and contrast. State the major assumptions of the CAPM. Graph the security market line and the capital market line. Calculate the risk premium on an individual security (or portfolio) using the CAPM equation. Identify on the graph of the security market line the alpha of an underpriced or overpriced security. Describe and graph how to estimate the alpha and beta of an individual stock using the characteristic line regression. Describe what assets/portfolios are on the capital market line and CAPM equation and why.
CAPM Evidence	Describe the empirical evidence which supports or opposes the CAPM. Characterize the ability of a dynamic, multi-factor model to explain the cross-section of expected returns vs. the CAPM.

UNIT E LEARNING OBJECTIVES

RWJ Ch. 14	Explain (IYOW) what is time value of money, discount rate, WACC, target weights, market weights, book weights, pure play approach, and subjective approach. Calculate the cost of equity using the following two methods: dividend growth model CAPM Describe the advantages and disadvantages of each approach. Describe how to find the cost of debt. Calculate the WACC for a company and describe for what it can be used. Describe why divisional and project cost of capital may differ from the overall firm WACC. Calculate divisional and project WACC’s.
RWJ Ch. 15	Explain (IYOW) what is optimal capital structure, interest tax shields, homemade leverage, and break-even EBIT. State Modigliani and Miller Proposition I with no taxes and its implications. Describe how taxes affect the proposition. State and interpret Modigliani and Miller Proposition II with and without taxes. Describe what financial distress costs are. Explain how they alter the implications of the Modigliani and Miller propositions. Describe the empirical evidence on capital structure across industries. Describe how the "pecking order" theory of financing helps explain observed capital structures.
Agency and Signaling	Explain (IYOW) why shareholders have an incentive to have the firm take on very risky projects, why bondholders don’t like this, and what bondholders do to protect themselves against being ripped off by shareholders. Explain (IYOW) why managers with inside information about the value of the firm have a credibility problem in communicating good news to the capital market and how costly signaling can overcome this problem.
RWJ Ch. 16	Describe the circumstances under which dividend policy would be irrelevant. What is the impact of shareholder income taxes and floatation costs on dividend policy. Explain (IYOW) what a dividend clientele effect is. Explain (IYOW) the tax implications of stock repurchase vs. paying a cash dividend.