You would want your firm to issue debt to repurchase shares of stock if you believed

Question

Quizplus · Accepted Answer

If a firm's equity is undervalued, it means that its shares are currently trading at a lower price than their true value. In this scenario, it may make sense for the firm to issue debt to repurchase shares of stock. By doing so, the firm can reduce the number of outstanding shares, which may increase the value of each individual share, ultimately benefitting shareholders. Additionally, issuing debt can be a more cost-effective way to raise capital than issuing additional equity. Issuing debt to repurchase shares of stock typically indicates that the firm believes its equity is undervalued. By repurchasing shares, the company reduces the number of outstanding shares, which can increase the value of the remaining shares. Additionally, issuing debt can be a cheaper way to finance the repurchase than using equity. If the firm believed its debt was undervalued, it would make more sense to issue equity instead.

You Would Want Your Firm to Issue Debt to Repurchase