Which of the following is a reason for a firm for repurchasing its shares?
A)to diminish the shareholder value by increasing the number of shares outstanding and thereby raising earnings per share
B)to help encourage a friendly takeover by increasing the number of publicly traded shares
C)to distribute cash to stockholders
D)to make shares available for cash dividends

Question

Quizplus · Accepted Answer

The reason for a firm to repurchase its shares is to distribute cash to stockholders. Repurchasing shares allows the firm to return excess cash to shareholders without committing to ongoing dividend payments. It can also increase the value of remaining shares by reducing the number of outstanding shares, which increases earnings per share. Option A is incorrect as repurchasing shares actually increases earnings per share, rather than diminishing shareholder value. Option B is incorrect as increasing the number of publicly traded shares would make a friendly takeover more difficult, not easier. Option D is incorrect as repurchasing shares would actually reduce the number of shares available for cash dividends.

Which of the Following Is a Reason for a Firm