10. Stock repurchases Aa Aa There are a number of reasons why a firm might want

Question

10. Stock repurchases Aa Aa 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: Washington and Jefferson Inc. is a high-tech company that recently repurchased a number of shares so that it will be able to meet obligations to employees without having to issue any new shares. What is the company's motivation for the stock repurchase? O To distribute excess funds to stockholders O To acquire shares needed for employee options or compensation To adjust the firm's capital structure To protect against a takeover attempt Which of the following statements would be considered advantages of a stock repurchase? Check all that apply. The interval between stock repurchases tends to be irregular, which means that investors cannot always count on cash inflows from repurchases 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 alter the firm's capital structure. Stock repurchases are especially effective when the amount of equity in the current capital structure is significantly greater than that required by the firm's target capital structure.

Explanation / Answer

10. 1. b) to acquire shares needed for employee options or compensations

Since the company is buying back shares to meet employee obligations issuing esops to employee seems an effective option.

2. both option b) and c) are advantages of stock repurchases and are primary motives for stock repurchases by companies. Option a) is a disadvantage of share buyback.

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