The Effect on Firm-Value by the Repurchase and Reissue of Treasury Stock — MM Capital-Theory Approach

• Main Authors: SHIU CHIUNG-WEN, 許瓊文
• Other Authors: 陳文魁
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/15140932664717380844

碩士 === 義守大學 === 管理科學研究所 === 91 === In a world of no corporate taxes, the Modigliani and Miller proves that the value of the firm and the cost of capital are unaffected by the debt-to-equity ratio. In other words, a firm’s capital structure is a matter of indifference in this world. However, in the presence of corporate taxes, the value of the firm and the cost of capital are affected by the firm’s capital structure. It shows that an increase in the firm’s value from debt financing leads to an increase in the value of the equity and a decrease in the cost of capital. We adopt Modigliani and Miller arbitrage to discuss two situations which are no corporate taxes and exist corporate taxes. We want to know the effect of the value of the firm and the cost of capital if the firm to leverage or to use idle money repurchases stocks in the two situations. The results show that the value of the firm and the cost of capital are unaffected by the firm use no interest idle money repurchases stocks, no matter there is no corporate taxes or not. Besides, we also want to discuss the affect treasury stocks reissue to get the money and use the money to pay a debt or idle with no interest in the two situations. The results show that the value of the firm and the cost of capital are unaffected by the money to pay a debt or idle with no interest, no matter there is no corporate taxes or not. This research has four important conclusions as follows: 1. The value of the firm and the cost of capital are unaffected by using no interest idle money repurchases stocks. The value of the firm and the cost of capital are unaffected by the firm use no interest idle money repurchases stocks, no matter there is no corporate taxes or not. 2. The value of the firm will increase and the cost of capital will decrease by using leverage repurchase stocks. In a world of no corporate taxes, the value of the firm and the cost of capital are unaffected by using leverage repurchase stocks. Besides, in a world of corporate taxes, the value of the firm and the cost of capital are affected by using leverage repurchase stocks. The value of the firm will increase and the cost of capital will decrease by the repurchase ratio increase. 3. The value of the firm and the cost of capital are unaffected by idling treasury stocks reissue money with no interest. The value of the firm and the cost of capital are unaffected by the money to pay a debt or idle with no interest, no matter there is no corporate taxes or not.