Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Question
Chapter 17.6, Problem 2CC
Summary Introduction
To discuss: Whether the manager is likely to repurchase shares and if the value of stocks are undervalued or overvalued.
Introduction:
Share repurchase is an alternative method to pay the cash to the company’s investors by way of buying back of shares. Stock repurchase is where the company purchases its own shares, which is still outstanding.
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Students have asked these similar questions
You observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency?
Which of the following would not be an appropriate reason for a firm to repurchase its stock:
As an investment if management believes the market has undervalued the stock price.
In order to have sufficient shares to cover employee stock programs.
Solely to boost Earnings Per Share.
Both A and B.
Why might a company repurchase its own stock?
A) It believes that the market undervalues its shares
B) To offset dilutive effects of employee stock options granted
C) To recognize an economic gain when the treasury shares are later sold for a profit
D) To improve earnings per share by reducing the denominator
E) All of the above
is it just A and B or is it all of the above
Chapter 17 Solutions
Corporate Finance
Ch. 17.1 - Prob. 1CCCh. 17.1 - Prob. 2CCCh. 17.2 - Prob. 1CCCh. 17.2 - In a perfect capital market, how important is the...Ch. 17.3 - Prob. 1CCCh. 17.3 - Prob. 2CCCh. 17.4 - Prob. 1CCCh. 17.4 - Prob. 2CCCh. 17.5 - Is there an advantage for a firm to retain its...Ch. 17.5 - Prob. 2CC
Ch. 17.6 - Prob. 1CCCh. 17.6 - Prob. 2CCCh. 17.7 - Prob. 1CCCh. 17.7 - Prob. 2CCCh. 17 - Prob. 1PCh. 17 - ABC Corporation announced that it will pay a...Ch. 17 - Prob. 3PCh. 17 - RFC Corp. has announced a 1 dividend. If RFCs...Ch. 17 - Prob. 5PCh. 17 - KMS Corporation has assets with a market value of...Ch. 17 - Natsam Corporation has 250 million of excess cash....Ch. 17 - Suppose the board of Natsam Corporation decided to...Ch. 17 - Prob. 9PCh. 17 - Suppose BE Press paid dividends at the end of each...Ch. 17 - The HNH Corporation will pay a constant dividend...Ch. 17 - Prob. 12PCh. 17 - Prob. 13PCh. 17 - Prob. 14PCh. 17 - Suppose that all capital gains are taxed at a 25%...Ch. 17 - Prob. 16PCh. 17 - Prob. 17PCh. 17 - Prob. 18PCh. 17 - Prob. 19PCh. 17 - A stock that you know is held by long-term...Ch. 17 - Clovix Corporation has 50 million in cash, 10...Ch. 17 - Assume capital markets are perfect. Kay Industries...Ch. 17 - Redo Problem 22., but assume that Kay must pay a...Ch. 17 - Harris Corporation has 250 million in cash, and...Ch. 17 - Redo Problem 22, but assume the following: a....Ch. 17 - Prob. 26PCh. 17 - Prob. 27PCh. 17 - Explain under which conditions an increase in the...Ch. 17 - Why is an announcement of a share repurchase...Ch. 17 - AMC Corporation currently has an enterprise value...Ch. 17 - Prob. 31PCh. 17 - Prob. 32PCh. 17 - Explain why most companies choose to pay stock...Ch. 17 - Prob. 34PCh. 17 - Prob. 35P
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Why might a rational investor invest in the stock of a company that pays no dividend?arrow_forwardHow is it possible for an employee stock option to be valuable even if the firm’s stock price fails to meet shareholders’ expectations?arrow_forwardWhat is the value of Ls stock for volatilities between 0.20 and 0.95? What incentives might the manager of L have if she understands this relationship? What might debtholders do in response?arrow_forward
- What is the possible agency conflict between inside owner/managers and outside shareholders? What are some possible agency conflicts between borrowers and lenders? How is it possible for an employee stock option to be valuable even if the firm’s stock price fails to meet shareholders’ expectations?arrow_forwardTo what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.arrow_forwardWhy is the cost of retained earnings cheaper than the cost of issuing new common stock? Group of answer choices Issuing new common stock may send a negative signal to the capital markets, which may depress the stock price. When a company issues new common stock they also have to pay flotation costs to the underwriter. Either Neitherarrow_forward
- 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.arrow_forwardWhich one of the following action will not lead to reducing financial risk? Issuing bonus shares Issuing equity shares Issuing preferred stock Reducing dividendarrow_forwardSuppose you need additional capital to expand,and you sell some stock to outside investors. If youmaintain enough stock to control the company,what type of agency conflict might occur?arrow_forward
- a controller argues that when a company issues stock for less than current value, the value of preexinting stockholders shares is diluted. Is this allowed and right at employee compensation ?arrow_forwardwhy would investors prefer to invest in a company with a regular divided policy than a company with a low regular and extra dividend policy?arrow_forwardTRUE or FALSE: Managers always attempt to maximize the long-run value of their firms' stocks, or the stocks' intrinsic values. This is exactly what stockholders desire. Thus, conflicts between stockholders and managers are not possible.arrow_forward
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