1. Which of the following divisions would you expect to benefit from a spinoff?
I. A division with largely independent operations doing business in a market substantially different from the parent corporation
II. A division being managed by a parent corporation's managers, who are regarded as highly competent by current and potential investors (the parent corporation's managers will not be in charge of the division after it is spun off)
III. A non-regulated division of a parent corporation that reports consolidated income and is itself under significant regulatory restrictions
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
2. You have been asked to do an analysis of the shareholder cash distribution policies of the following firm:
Firm A: SCD/FCFE = 90%; ROE = 13.50%; Ke = 12.50%
Firm B: SCD/FCFE = 50%; ROE = 8.50%; Ke = 12.00%
Firm C: SCD/FCFE = 110%; ROE = 15.00%; Ke = 11.00%
The industry in which these firms operate has a ROE of 14.00% and a Ke of 12.00%. Which of these firms should clearly increase its SCD/FCFE ratio?
A. Firm A only
B. Firm B only
C. Firms A and B
D. Neither firm should increase its SCD/FCFE ratio