1. VALUE ENHANCEMENT

2. 2 Value enhancement or not?  Which of the following actions is a “value enhancing” action?  A stock split  Amortizing goodwill  Changing depreciation methods in reporting but not in tax books  Issuing tracking stock on your “social media” business  None of the above  Could any of these actions be price enhancing? Explain why.

3. 3 Divestitures and consequences  A large multi-business company has four divisions and you are the new CEO. DivisionReturn on CapitalCost of Capital A20%10% B15% 9% C8.5%8.5% D3%7.5%  You are thinking about selling one of these divisions. Which one, if divested, is likely to create the most value enhancement? Why?

4. 4 Financing decisions and value…  XYZ company has $ 200 million in debt and $ 800 million in equity. It’s optimal debt ratio is 20%. The CFO is convinced that there is no potential for lowering the cost of capital through financing choices, since she is at the optimal. Is this true?  Yes  No  Explain why.

5. 5 Cash, buybacks and value..  Google has $60 billion as a cash balance. If it decides to return $45 billion in cash in stock buybacks, will that leave you as investor in Apple better off or worse off? a. Better off b. Worse off c. Unaffected  Explain why.