Q#2 After the 2008 stock market crash, an increasing number of publicly traded f
ID: 2629947 • Letter: Q
Question
Q#2 After the 2008 stock market crash, an increasing number of publicly traded firms announced stock buyback (repurchase) programs. Please explain what benefits or rationale, if any, firms see in stock repurchases when their prices are down and how would investors react to these repurchase programs. You would want to use your understanding of chapter 14 stock repurchase discussion in your answers. Limit your answers to no more than ten (10) sentences.
Text book : Financial Management: Theory and Practice, by Brigham and Ehrhardt 14th Ed.
Explanation / Answer
Please explain what benefits or rationale, if any, firms see in stock repurchases when their prices are down and how would investors react to these repurchase programs.
When the stock market crashes, equity prices are low and it represents an opportuntiy for companies to purchase back equity in their business at depressed prices. This is done so that they are able to have fewer outstanding shares, which is good for stock holders and also helps the stock price to go back up. As a result, when prices go back up, the value of the company rises along with the stock prices and companies are able to re-issue their stock when the company improves at a much higher price to buyers entering into the market. This helps to raise company profits.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.