Question
Companies with excess cash often employ share repurchase plans in place of or along with cash dividends. Share repurchase plans can help investors liquidate their
Companies with excess cash often employ share repurchase plans in place of or along with cash dividends. Share repurchase plans can help investors liquidate their holdings by selling their stock to the issuing company and earning from capital gains.
Consider the case of Sixty-second Avenue Company:
Sixty-second Avenue Company expects to earn $5,700,000 this year. The company currently has 720,000 shares outstanding, and the shares have a per-share market price of $18. Assuming that Sixty-second Avenues price-to-earnings (P/E) ratio remains constant and its earnings are unaffected by a share repurchase transaction, then the companys expected market price per shareif it repurchases 75,000 shares at the current market priceshould be .
Which of these factors are considered an advantage of a stock repurchase? Check all that apply.
Stockholders who sell their stock back to the company might claim that they were not made fully aware of all implications of the repurchase.
The firm might pay too high a price for the repurchased stock.
Repurchases can be used to produce large-scale changes in capital structure.
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