A firm may repurchase its own stock in the market because

Question

Quizplus · Accepted Answer

A firm may repurchase its own stock in the market for a variety of reasons. It may do so to increase the stockholders' wealth by reducing the number of outstanding shares and increasing the value of the remaining shares. It may also do so if the firm's stock is temporarily depressed, as buying back shares may signal to the market that the company believes in its long-term prospects, thus boosting investor confidence. Additionally, the act of repurchasing shares may provide positive informational content to the market, indicating that the firm believes its stock is undervalued. Therefore, the best choice is D, as all of these options are potential reasons for a firm to repurchase its own stock in the market.

A Firm May Repurchase Its Own Stock in the Market