There are a number of reasons why a firm might want to repurchase its own stock.
ID: 2793606 • Letter: T
Question
There are a number of reasons why a firm might want to repurchase its own stock. Read the statement and then answer the corresponding question about the company's motivation for the stock repurchase: Taft and Polk Corp.'s board of directors has decided to repurchase some of its stock on the open market because the company has received a large, one-time cash flow, and it believes that the company's stock is undervalued. What is the company's motivation for the stock repurchase? O To adjust the firm's capital structure O To distribute excess funds to stockholders O To protect against a takeover attempt O To acquire shares needed for employee options or compensation Which of the following statements would be considered advantages of a stock repurchase? Check all that apply. A stock repurchase can be used to minimize the dilution effect associated with employees exercising their stock options. Stock repurchases are an effective way to change the firm's capital structure when the amount of equity in th current capital structure is significantly greater than the firm's target capital structure. At times, the company will repurchase its stock at a price higher than the true value of the stock.Explanation / Answer
a.
There are somany motivations for stock repurchase like, comapny has excess cash, if stock is overvalued, to improve financial ratios. One of the reason of stock repurchase to protect against takeover attempts.
Option (C) is correct answer.
b.
A stock repurchase can be use to minimize the dilution effect associated with employee excercising their stock option. stock repurchase also helps the company in adjust its target capital structure if value of equity in capital structure is higher than target capital structure.
Option(A) and (B) is correct answer.
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