Which of the following is true of a repurchase (buyback)of shares?

Question

Quizplus · Accepted Answer

Repurchases earn continuing shareholders the most when the stock's market price is below its true or intrinsic value. This is because the company can buy back the shares at a discounted price and then distribute the remaining earnings to the remaining shareholders, increasing their ownership percentage and potentially increasing the value of their shares. Companies may also buy back shares to offset dilution from employee stock options or to return excess cash to shareholders. Contrary to choice A, companies may actually buy back shares when they are doing well and have excess cash. Choice B is incorrect as a buyback does not involve interest payments. Choice D is also incorrect as the value passed on to those who sold depends on the price at which they sold their shares, not the market price after the buyback.

Which of the Following Is True of a Repurchase (Buyback)of