Following Miller and Modigiliani (1961), “Dividend policy, growth, and valuation of shares”, show that the dividend policy of a firm is irrelevant in a perfect capital market.
What is the appropriate decision rule for a firm considering undertaking a capital project? Give a real-life example.
Explain how Berger and Ofek (1995) empirically test the diversification effect on firm value. You need to explain how they estimate the imputed stand-alone value. Point out what could be a potential problem using Berger and Ofek’s imputed value measure.