Cisco Systems wishes to analyze the joint impact of its working capital investment and financing policies on shareholder return.The company has $24 million in fixed assets.Cisco wishes to maintain a debt ratio of 40%.The company's tax rate is also 40%.The following information was developed for the two policies under consideration (dollars in millions) :
For the aggressive approach, Cisco's ROE is and for the conservative approach the ROE is .
Definitions:
Stock Split
A corporate action that increases the number of a company's shares by issuing more shares to current shareholders, thus reducing the price per share.
Common Stock Dividend
A portion of a company's earnings distributed to shareholders of its common stock, typically in the form of cash or additional shares.
Common Shares Outstanding
The total number of shares of a company that are owned by shareholders, excluding shares owned by the company itself.
Treasury Stock
Shares previously counted among a company's outstanding shares but were later bought back by the business.
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