Question

Trenton Corporation just completed a sale-leaseback of 200 restaurants for $1 billion. Net proceeds after taxes and payment of debt is $620 million. Which strategy for use of the re- maining funds will provide the best long-term return for shareholders?
A. pay additional dividends and buy back stock.
B. reinvest the funds into corp x's core restaurant business
C. acquire other restaurant chains
D. keep funds on balance sheet for future contingencies

Answer 1

Answer:

The correct option is B:

For Trenton Corporation it is beneficial to reinvest the funds into corporation's core restaurant business

Explanation:

Trenton Corporation , who has sale-leaseback of 200 restaurants for $1 billion and the net proceeds of all payments is $620 m, the better option for putting the remaining funds for the best long-term return for shareholders would be :

B) reinvest the funds into Trenton's core restaurant business

Reason:

This is because the reinvesting back of the fund to the restaurants business will be an investment in the known core business field and it will add many more appreciation and value to the shareholder's fund.

Paying dividends to shareholder's and taking loan or issue new share capital will reduce the share value of the existing shareholders.