Maybe you should rethink some of these questions as they really take time to complete. It is kind of discouraging for a student trying to make progress. 1. Based upon the Learning Activities in Topic 2, the optimal capital structure is governed by a variety of factors, including taxes and the costs of financial distress. Compare and contrast the capital structure of JP Morgan Chase with one other non-banking member of the Dow Jones Industrial Average (DJIA) using at least five different factors described in Topic 2. Capital Structure Irrelevence, Benefit from Tas Deductibility of Interest, Cost of Financial Distress, Agency Costs, Cost of Asymmetric Information. please refer to http://www.jefferymorseministries.com/files/bofajpmorgcomp.xlsx for financial info. Capital Structure Irrlevance. We can see that there is a relevance to capital struction. In the spread sheet we see that B-of-A JpMorgan Total Debt to Total Equity 170.13 234.26 Long-Term Debt to Equity 71.54 118.49 as a result we see that B of A enjoys a much lower tax rate Tax Rate 16.00% 27.00% After-tax Cost of Debt 4.20% 3.70% Notice that at the begining B of A seems to have the better rate, however, aftertax, JPMorgan actually comes out ahead. This is because that higher tax rate ends up being what JPMorgan saves instead of what they pay do to tax deductions for the higher debt. The end result is shown in the stock prices of the two companies, which are almost identical in most other areas. B of A JPmorgan Book value per share 27.43 73.45 Tangible book value per share 19.93 58.14 Benefit from Tas Deductibility of Interest: covered in last section Cost of Financial Distress Neither company are really suffering. As both show big increases in dividend. However, there are some interresting things going on. B of A JPMorgan Div growth rate (5 year) 44.27% 12.97% Payout ratio (TTM) 16.85% 21.60% EPS growth(5 years) 182.37 6.85 Big increase for B of A in both growth rate and EPS Growth. However, JpMorgan is still payingout more. Atempt of B-of-A to catch up to it competitor are comming at some financial distress, This may look good to an investor but to a lender those big increases increases the probability of default. Agency Costs are pretty close for the two, JpMorgan has a greater ROE, but the biggest boost is that much higher share price. making CFPS leap from 1.85 for BOFA to 6.2 for JPMorgan. Net profit margin 22.81% 26.98% Operating margin 32.64% 36.36% Return on assets 0.89% 1.05% Return on equity 7.40% 10.72% Return on investment -- -- Cash flow per share 1.85 6.2 It should be noted that JPMorgan's "A3" credit rating is only slightly higher than B of A's "BBB+". Cost of Asymmetric Information. It well could be that JPMorgan is privy to some info that B of A doesn't have. This major difference is share price and ROE is amazing and really unexplained as both corperation are so close. The only real major differnece between the two is that JPMorgan is leveraged alot more. This in return increases the total value of the company. The final note on this is taken directly from the research page listed in the speadsheet. And thought the WACC numbers are different then the reported estimates from other pages the conclusions are valid due to the capital structure difference. https://www.gurufocus.com/term/wacc/JPM/WACC-/JPMorgan-Chase--Co JPMorgan Chase & Co (NYSE:JPM) WACC %:4.35% As of Today JPMorgan Chase & Co's ROIC % is 15.11% (calculated using TTM income statement data). JPMorgan Chase & Co generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. https://www.gurufocus.com/term/wacc/BAC/WACC-/Bank-of-America-Corporation Bank of America Corporation (NYSE:BAC) WACC %:6.03% As of Today Bank of America Corporation's ROIC % is 5.53% (calculated using TTM income statement data). Bank of America Corporation earns returns that do not match up to its cost of capital. It will destroy value as it grows. 2. Based upon the Learning Activities in Topic 3, why do some firms pay no dividends while others consistently pay dividends? In other words, what are the primary drivers behind the dividend decision? Some of the reasons covered are items like; Firls pay no dividends when in growth mode choosing instead to re invest in infistructure, or investments. While others may choose to buy back stock. The reasons for paying dividends are such as; a portral of firm health, as a way to try to increase stock prices, this increasing the value of the company. Since corperations are not sole proprietorships ivestors expect a return on thier investments. When investors buy stock this enturn provides cash flow. If the company is more Equity driven (Like B-of-A) Paying out dividends is an important way to ensure positive cash flow. Based upon the last video in Topic 3, how will the market generally interpret a dividend cut combined with a stock repurchase? This is a sign of a healthy firm. This is the view of most. ON the flip side, this can also be viewed as an attempt to manipulate stock price. It is a signal that a firm feels their stock is under priced. Lastly, a stock dividend may be used in the form of a stock split in an attempt to increase a firms total value.