In June 2007, the Web travel firm Expedia, Inc., announced that it would buy back as much as 42 percent of its shares, with the repurchase financed by new borrowings.
a. What is the likely effect on earnings per share and earnings per share growth?
b. What is the effect on the risk that the shareholders bear?
c. Will there purchase add value to shareholders? To answer, consider that the shares traded at a rather high multiple of 26 time analysts' forward earnings estimates at the time.
d. The firm's proxy statement says that executive compensation is tied to (among other things) earnings per share. Is this a desirable way to reward management?