Stock repurchases reduce quizlet

-it removes stock from circulation and reduces the number of shares of stock held by investors - dividend does not affect who owns the shares or the number of shares outstanding - stock repurchase affects liquidity and ownership-stock purchases are taxed differently - dividends are accounted for differently on the balance sheet

The market generally perceives a stock repurchase as a sign that management believes that the firm's stock is undervalued. Stock repurchases are an effective way to change the firm's capital structure when the amount of equity in the current capital structure is significantly greater than the firm's target capital structure At times, the company will repurchase its stock at a price higher than the true value of the stock. Stock repurchases can be used (1) somewhat routinely as an alternative to regular dividends, (2) to dispose of excess (nonrecurring) cash that came from asset sales or from temporarily high earnings, and (3) in connection with a capital structure change in which debt is sold and the proceeds are used to buy back and retire shares. In theory, a stock buyback has no effect on the price per share of a company’s stock. Suppose a company has 100 million shares outstanding at $50 each, so its equity is worth $5 billion. It buys back 10 million shares for $50 each, spending $500 million. Since it has spent $500 million in cash, the remaining equity is worth $4.5 billion. A) increases; increases B) decreases; decreases C) increases; decreases D) decreases; increases Answer: A Topic: Stock Repurchases 13.6.16) Stock repurchases may be made for all of the following reasons EXCEPT A) to enhance shareholder value by reducing the number of shares outstanding and thereby raising earnings per share. If the repurchases reduce the shares outstanding to a greater extent than net income is falling, then earnings on a per-share basis will rise irrespective of the health of the overall business.

The share repurchase reduces the number of existing shares, making each worth a greater percentage of the corporation. The stock’s EPS increases while the price-to-earnings ratio (P/E) decreases or

Stock repurchases can be used (1) somewhat routinely as an alternative to regular dividends, (2) to dispose of excess (nonrecurring) cash that came from asset sales or from temporarily high earnings, and (3) in connection with a capital structure change in which debt is sold and the proceeds are used to buy back and retire shares. In theory, a stock buyback has no effect on the price per share of a company’s stock. Suppose a company has 100 million shares outstanding at $50 each, so its equity is worth $5 billion. It buys back 10 million shares for $50 each, spending $500 million. Since it has spent $500 million in cash, the remaining equity is worth $4.5 billion. A) increases; increases B) decreases; decreases C) increases; decreases D) decreases; increases Answer: A Topic: Stock Repurchases 13.6.16) Stock repurchases may be made for all of the following reasons EXCEPT A) to enhance shareholder value by reducing the number of shares outstanding and thereby raising earnings per share. If the repurchases reduce the shares outstanding to a greater extent than net income is falling, then earnings on a per-share basis will rise irrespective of the health of the overall business. When a company buys back stock, it first reduces its cash account on the asset side of the balance sheet by the amount of the buyback. For example, if a company repurchases 100,000 shares for $50 each, it would subtract $5 million from its cash balance. FREQUENTLY ASKED QUESTIONS ABOUT RULE 10b-18 AND STOCK REPURCHASE PROGRAMS The Regulation What is Rule 10b‐18? Rule 10b‐18 provides a company (and its “affiliated purchasers”) with a non‐exclusive safe harbor from liability under certain market manipulation rules (i.e., As a result, return on assets (ROA) increases because assets are reduced; return on equity (ROE) increases because there is less outstanding equity. In general, the market views higher ROA and ROE as positives. Suppose a company repurchases one million shares at $15 per share for a total cash outlay of $15 million.

-it removes stock from circulation and reduces the number of shares of stock held by investors - dividend does not affect who owns the shares or the number of shares outstanding - stock repurchase affects liquidity and ownership-stock purchases are taxed differently - dividends are accounted for differently on the balance sheet

On the balance sheet, a share repurchase will reduce the company’s cash holdings, and consequently its total assets base, by the amount of the cash expended in the buyback. The buyback will simultaneously also shrink shareholders' equity on the liabilities side by the same amount. A) Funneling excess cash flows back to shareholders through higher dividends. B) Minimizing the amount of debt in the firm’s capital structure so that the firm can borrow money at a reasonable rate when good investment opportunities arise. C) Funneling excess cash flows back to shareholders through stock repurchases. Stock Buybacks Reduce Capital Spending All businesses have one cash flow bucket. Cash goes in; cash goes out, the difference is the capital it can allocate for uses other than keeping the company The market generally perceives a stock repurchase as a sign that management believes that the firm's stock is undervalued. Stock repurchases are an effective way to change the firm's capital structure when the amount of equity in the current capital structure is significantly greater than the firm's target capital structure At times, the company will repurchase its stock at a price higher than the true value of the stock. Stock repurchases can be used (1) somewhat routinely as an alternative to regular dividends, (2) to dispose of excess (nonrecurring) cash that came from asset sales or from temporarily high earnings, and (3) in connection with a capital structure change in which debt is sold and the proceeds are used to buy back and retire shares. In theory, a stock buyback has no effect on the price per share of a company’s stock. Suppose a company has 100 million shares outstanding at $50 each, so its equity is worth $5 billion. It buys back 10 million shares for $50 each, spending $500 million. Since it has spent $500 million in cash, the remaining equity is worth $4.5 billion.

On the balance sheet, a share repurchase will reduce the company’s cash holdings, and consequently its total assets base, by the amount of the cash expended in the buyback. The buyback will simultaneously also shrink shareholders' equity on the liabilities side by the same amount.

Stock Buybacks Reduce Capital Spending All businesses have one cash flow bucket. Cash goes in; cash goes out, the difference is the capital it can allocate for uses other than keeping the company The market generally perceives a stock repurchase as a sign that management believes that the firm's stock is undervalued. Stock repurchases are an effective way to change the firm's capital structure when the amount of equity in the current capital structure is significantly greater than the firm's target capital structure At times, the company will repurchase its stock at a price higher than the true value of the stock. Stock repurchases can be used (1) somewhat routinely as an alternative to regular dividends, (2) to dispose of excess (nonrecurring) cash that came from asset sales or from temporarily high earnings, and (3) in connection with a capital structure change in which debt is sold and the proceeds are used to buy back and retire shares.

A) Funneling excess cash flows back to shareholders through higher dividends. B) Minimizing the amount of debt in the firm’s capital structure so that the firm can borrow money at a reasonable rate when good investment opportunities arise. C) Funneling excess cash flows back to shareholders through stock repurchases.

If a stock's price is $90 and the stock is split three for one, the price becomes a. $90 b. $60 c. $45 d. $30 If a stock's price is $90 and the stock is split three for one, the price becomes Select one: a. $90 b. $60 c. $45 d. $30 -it removes stock from circulation and reduces the number of shares of stock held by investors - dividend does not affect who owns the shares or the number of shares outstanding - stock repurchase affects liquidity and ownership-stock purchases are taxed differently - dividends are accounted for differently on the balance sheet Stock repurchases boost the stock price because they reduce the number of shares outstanding as well as increase ROE and EPS A) True B) False

A) Funneling excess cash flows back to shareholders through higher dividends. B) Minimizing the amount of debt in the firm’s capital structure so that the firm can borrow money at a reasonable rate when good investment opportunities arise. C) Funneling excess cash flows back to shareholders through stock repurchases. The share repurchase reduces the number of existing shares, making each worth a greater percentage of the corporation. The stock’s EPS increases while the price-to-earnings ratio (P/E) decreases or If the repurchases reduce the shares outstanding to a greater extent than net income is falling, then earnings on a per-share basis will rise irrespective of the health of the overall business. On the balance sheet, a share repurchase will reduce the company’s cash holdings, and consequently its total assets base, by the amount of the cash expended in the buyback. The buyback will simultaneously also shrink shareholders' equity on the liabilities side by the same amount. A) Funneling excess cash flows back to shareholders through higher dividends. B) Minimizing the amount of debt in the firm’s capital structure so that the firm can borrow money at a reasonable rate when good investment opportunities arise. C) Funneling excess cash flows back to shareholders through stock repurchases.