If a company feels that its shares are undervalued and it wants to send a signal to the market, the company may:
A) Issue more stock (as allowed under its charter)
B) Decrease regular cash dividends in an attempt to increase share price
C) Repurchase shares
D) Do nothing and wait - the market will realize the undervaluation

Question

Quizplus · Accepted Answer

One reason a company may repurchase shares is if it feels that the market undervalues them. The logic is that the repurchase sends a "signal" to the market and the company is able to realize a subsequent "gain" on resale of the shares. However, these gains are never reflected on the income statement. Instead, the excess of the resale price over the original repurchase price is credited to additional paid-in capital.

If a Company Feels That Its Shares Are Undervalued and It