Answer all the questions.

Use the cases to illustrate answers.

Case: "Financial Policy at Apple, 2013(A)".

Each question is equally weighted.

1. Though M&M's proposition II argues that value is maximized with 100% debt, explain how the agency conflict, bankruptcy, personal taxes, and signaling affect the optimal capital structure.

2. Question 2 is on dividends:
a. Do dividend changes convey information about a firm's future profits? Summarize the evidence.
b. Explain the agency-based arguments about dividend policy.
c. Compare and contrast dividends with share repurchases.

3. Question 3 is about mergers and acquisitions:
a. List and explain three valid reasons for mergers.
b. Explain why diversification is a poor reason for two firms to merge.

4. Explain what is meant by financial distress. List and explain the direct and indirect cost of financial distress

5. Briefly explain how hedging can mitigate each of the following real world problems:
a. Taxes
b. The cost of external financing
c. Debt capacity constraints
d. The negative effects of management risk aversion
e. The under investment problem
f. The asset substitution problem.

6. Question 6 is on working capital management:
a. Compare and Contrast the operating and the cash cycles.
b. Explain how Apple had a negative cash cycle in 2013.
c. Explain why a firm may choose a restrictive working capital policy over a more flexible policy.

Attachment:- Financial-Policy-at-Apple--2013.rar