# M&M’s Proposition I and II

##### Description

1. State and explain M&M’s Proposition I and II. How can shareholders be
indifferent to increased leverage when it increases expected return?

2. Which one, dividend increase and stock repurchase, signals greater future profits? Why?

3. China launched its first stock options on the Shanghai Stock Exchange in Feb 2015. The options are based on the exchange-trade fund (ETF) that tracks the SSE 50 index, composed of the 50 most heavily weighted stocks on the bourse. Give an example of stock option traded in the HK Stock Market. What is its underlying stock, current price and strike price?

1. Please find out the personal tax rate on saving interests, capital gain and dividends for Hong Kong and China. And calculate the effective rate, and compare them.

2. Underpricing of an IPO Assume the issuer incurs \$1 million in other expenses to sell 5 million shares at \$40 each to an underwriter and the underwriter sells the shares at \$54 each. By the end of the first day’s trading, the issuing company’s stock price had risen to \$88. What is the total cost of underpricing? What are the price of \$40,\$54 and \$88 for?

3. Unida Systems has 40 million shares outstanding trading for \$10 per share. In addition, Unida has \$100 million in outstanding debt. Suppose Unida’s current equity cost of capital is 15%, debt cost of capital is 8%, and the corporate tax rate is 40%

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