If a ﬁrm has excess cash and management believes the ﬁrm's shares are currently undervalued by market participants, the ﬁrm is a likely candidate for a _________.

Question

Quizplus · Accepted Answer

If a firm has excess cash and believes their shares are undervalued, a stock repurchase would be the best option as it would increase the value of the remaining shares and signal to the market that the firm has confidence in its future performance. A liquidating dividend would be inappropriate as it indicates the firm is ceasing operations, while a stock dividend and regular cash dividend would not address the undervaluation issue. A stock split would increase the number of shares outstanding without addressing the underlying undervaluation.

If a ﬁRm Has Excess Cash and Management Believes the ﬁRm's