You have recently been appointed the financial director of a listed South African company. Over the past few years the company has grown its revenue at a stable rate, but increasing competition and lower demand in the market means that there is little prospect of growth for the company over the next five years. Industry experts do not foresee any significant growth prospects for the industry and, at a recent strategy session, company executives reported that there are very few high-return investment opportunities that it could pursue. Despite having high cash reserves to invest (R100,000,000), most projects do not have returns adequate to yield positive NPVs. The flat trading conditions also had the company divest one of its subsidiaries recently and it used the funds from this action to redeem debt and, currently, the company makes use of zero debt financing. The companys share price is currently trading at 50% of its historical high and market analysts have indicated that the companys P/E ratio of 7 is lower than that of its closest competitors. At a recent board meeting the executives discussed the possibility of using part of its high cash reserves in order to repurchase shares to the value of R50,000,000.

Given the information that has been supplied above; explain why the board would be right in considering the repurchase of shares. In your answer, discuss the different options that a company has for its cash and how the information supplied will influence your recommendation for the company to repurchase shares.