Petra Sales Company has issued 200 000 ordinary shares for $4 per share. The directors decide to undertake a share buy- back of 10 000 shares at $5 per share. This will have no overall effect on total Shareholders' equity

Question

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A share buy-back reduces the total shareholders' equity because the company uses its cash reserves to purchase its own shares, decreasing both the cash and the equity on the balance sheet.

Petra Sales Company Has Issued 200 000 Ordinary Shares for $4