Firms occasionally repurchase stock in order to alter capital structure or to increase the returns to the owners.

Question

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Firms may repurchase stock to adjust their capital structure or to provide greater returns to their shareholders. By reducing the number of outstanding shares, this can increase the earnings per share and potentially lead to an increase in the stock price. It can also signal to investors that the company has confidence in its future prospects.

Firms Occasionally Repurchase Stock in Order to Alter Capital Structure