Stock repurchases

There are a number of reasons why a firm might want to repurchase its own stock. Read the statement and then answer the corresponding question about the companys motivation for the stock repurchase:

Happy Orange Storage Companys board of directors has decided to repurchase some of its stock on the open market because it wants to increase the companys debt-to-equity ratio.

What is the companys motivation for the stock repurchase?

To adjust the firms capital structure

To acquire shares needed for employee options or compensation

To distribute excess funds to stockholders

To protect against a takeover attempt

Which of the following statements would be considered advantages of a stock repurchase? Check all that apply.

The market generally perceives a stock repurchase as a sign that management believes that the firms stock is undervalued.

Stock repurchases allow a firm to distribute earnings to investors without changing the amount of the regular cash dividend.

At times, the company will repurchase its stock at a price higher than the true value of the stock.