Print 2. Krugman Exports, Inc., is located in Clancy, New Mexico. The company does business with specialty stores such as Neiman Marcus. Krugman's recent success has made the company a prime target for a takeover. (Click the icon to view takeover information.) Read the requirements Requirement 1. Suppose you are a significant stockholder of Krugman Exports, Inc. Write a memorandum to explain to the board how the purchase of treasury stock would make it difficult for Creston to take over Krugman. Explain the effect that purchasing treasury stock would have on stock outstanding and on the size of the corporation. To: Krugman Exports, Inc., Board of Directors Re: How the purchase of treasury stock will make it more difficult for outsiders to take over the company sufficient quantity of company stock in the treasury, outsiders, such as the Creston investor group, (2) acquire a controlling interest (50+ percent) of the Purchasing treasury stock (1) If Krugman Exports holds outstanding stock from the remaining stockholders. Because it takes cash to buy treasury stock, the purchase (3) the size of the corporation. Reducing the company's cash position may make the company sufficiently (4) Requirement 2. Suppose Krugman is successful in fighting off the takeover bid and later sells the treasury stock at prices greater than the purchase price. Explain what effect these sales will have on assets, stockholders' equity, and net income. company assets because of the greater amount of assets coming in from the sale than went out to buy the stock. Treasury stock transactions (6) Sales of treasury stock at prices above the purchase price (5) liabilities, so the sale of treasury stock also (7) stockholders' equity. These sales of treasury stock (8). net income because the company is dealing with its owners. Transactions between the corporation and its owners (9). that is reported on the income statement. 1: More Info The investment group Creston is attempting to buy 52% of Krugman's outstanding stock against the wishes of Krugman's board of directors. Board members are convinced that Creston would sell the most desirable pieces of the business and leave little of value. At the most recent board meeting, several suggestions for fighting off the hostile takeover were made. The one with the most promise is to purchase a huge quantity of treasury stock. Krugman has the cash to carry out this plan. 2: Requirements 1. Suppose you are a significant stockholder of Krugman Exports, Inc. Write a memorandum to explain to the board how the purchase of treasury stock would make it difficult for Creston to take over Krugman. Explain the effect that purchasing treasury stock would have on stock outstanding and on the size of the corporation. 2. Suppose Krugman is successful in fighting off the takeover bid and later sells the treasury stock at prices greater than the purchase price. Explain what effect these sales will have on assets, stockholders' equity, and net income. (1) O decreases the amount of stock outstanding O increases the amount of authorized shares increases the amount of stock outstanding (2) O may be able to O may not be able to (3) O decreases O has no impact O increases (4) O unattractive to cause the outside investors to abandon their takeover plan O vulnerable to cause the outside investors to take control of the company (5) O decrease O do not affect O increase (6) O decrease O do not affect O increase (7) O decreases O does not affect O increases (8) O will affect O will not affect (9) O cannot generate a profit or a loss can generate a profit or a loss
