* Your answer is incorrect.A company may repurchase its own shares for all of the following reasons, exceptO to reduce the number of shares issued and thereby increase earnings per share and return on equity.to have additional shares available for use in the acquisition of other companies.O to attempt to influence the market price of the shares.O to reduce the number of shares issued in order to meet debt to equity bank covenant requirements.

Repurchase of shares refers to the business activity through which the company buys back its own…

Answered: A company may repurchase its own shares…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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How do you think each of the following items would affect a company’sability to attract new capital and the flotation costs involved in doing so?a. A decision of a privately held company to go publicb. The increasing institutionalization of the “buy side” of the stock andbond marketsc. The trend toward financial conglomerates as opposed to stand-aloneinvestment banking housesd. Elimination of the preemptive righte. The introduction in 1981 of shelf registration of securities
The declaration and issuance of a stock dividend results in a reduction of the issuing corporation's total stockholders' equity. True or False
It is not unusual for some company investments to carry cumulative dividend rights. Which of the following statements about the declaration of cumulative dividends is correct? A. They are paid when profits are available for that purpose B. They are paid out of capital C. They are paid in the form of a bonus issue D. They are not paid until profits reach a certain percentage
Firms raise capital from investors by issuing shares in the primary markets. Does this imply that corporate financial managers can ignore trading of previously issued shares in the secondary market?
1. When the firm gets acquired by a better fundamental company, does that increase, decrease, or have no effect on the credit spread for a corporate bond?
A bank that seeks to increase its risk-adjusted capital ratio has a number of options at its disposal including: Issue new equity, such as through a rights issue to existing shareholders, an equity offering on the open market, or by placing a bloc of shares with an outside investor. Increase retained earnings by reducing the share of its profit it pays out in dividends. Reduce its risk-weighted assets by replacing riskier loans with safer ones or with government securities. Chose 1 option from below:Only I is correct. Only II is correct. I and II are correct. Only III is correct. I, II and III are correct. Thanks!
For what reason might a company purchase treasury stock? To increase shareholder liquidity To execute an acquisition through a share exchange To increase the number of outstanding shares of stock To reduce future income taxes
In detail
Companies are more apt to choose repurchases over dividends if doing so will enable them to I. take advantage of a market undervaluation of their shares. II. maintain or increase the value of executive stock options. III. offset the dilution created by the exercise of executive stock options. IV. distribute revenue increases that are considered temporary or short-term in nature.
Topic: Capital Raising for Corporations Explain the following in a simple way for me to easyly understand Equity Issued as Compensation: Stock Options Debt Financing Principles of Liability Recognition Principles of Liability Valuation
In financing their operations, corporations have the options of raising capital by issuing stock or debt or both. What are the benefits of using the two sources and what are the risks with each of them?
Which of the following statements is CORRECT? a. Sinking fund provisions never require companies to retire their debt; they only establish "targets" for the company to reduce its debt over time. b. Most sinking funds require the issuer to provide funds to a trustee, who holds the money so that it will be available to pay off bondholders when the bonds mature. c. Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if interest rates decline after the bond was issued. d. If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price. e. A sinking fund provision makes a bond more risky to investors at the time of issuance.

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