Question 1

Discuss a real world decision that you have analyzed (like a capital budgeting decision or security investment). Explain how you might now go about setting up the "investment decision."

Question 2

If you were to purchase a stock, would you be looking for one that paid high dividends or high capital gains? Explain your answer.

Question 3

When the Bell System was originally broken up, the old AT&T was split into a new AT&T plus 7 regional telephone companies. The specific reason for forcing the breakup was to increase the degree of competition in the telephone industry. AT&T had a monopoly on local service, long distance, and the manufacture of all the equipment used by telephone companies, and the breakup was expected to open most of these markets to competition. In the court order that set the terms of the breakup, the capital structures of the surviving companies were specified, and much attention was given to the increased competition telephone companies could expect in the future.

How do you think the optimal capital structure after the breakup compared to the pre-breakup optimal capital structure? Using the concepts learned in this objective, explain your position. (Do not research AT&T's financial statements?there is no need to do so