Basics Of Buyback Programs : The Financial Crisis

A buyback allows companies to invest in themselves. By reducing the number of shares outstanding on the market, buybacks increase the proportion of shares a company owns. Buybacks can be carried out in two ways:

In the open market share repurchase, the firm may or may not declare the repurchase. Depending on the market condition and the firm’s position in the industry, the firm can decide when and how many

Since firms incur the re-purchase option by offering $20 cash for each stock bought back, the number of outstanding shares will be reduced. The Earnings per share will increase leading to an increased stock price.

Management considering share repurchase program should weigh its benefit of financial discipline, efficient corporate strategy implementation and utilization of tax shield against the downside of cost of financial distress. It’s not the possibility of bankruptcy that causes concerns among equity holders regarding extent of leverage but the direct costs (legal, liquidation, administrative etc.) and indirect costs (deteriorated corporate image, management time and attention, agency costs of value-destructing investment, distress asset sales etc.). Exhibit 4 lists the key assumption inputs of approximating quantitative firm value/ equity value accretion. Levering UST to a larger extent by adding $1,000m does increase firm value.

Consolidated Papers INC. "Annual Report to Stockholders. " 18 Apr. 1995. SEC Filings. LexisNexis. Rod Library, Cedar Falls. 15 Feb. 2009. Keyword: paper.

Ford Motor announced its value enhancement plan (VEP) in 2000 to restructure its ownership. With the new VEP, Ford aimed to pay $10 billion cash back to its shareholders. Basically, the VEP provided all the existing shareholders, including the family and common shareholders, a proposal to exchange their shares one-for-one for new shares accompanying with an additional option of ei-ther achieving $20 per share or equivalent extra new shares based on the Ford’s new stock price. Compared with two conventional pay-outs methods – cash dividends and share repurchases, Ford’s VEP is a more flexible way. The reasons are as follows:

This question is designed to focus the class on the share repurchase program as a critical use of funds for 2006. The primary advantage of share repurchases using dividends is that management can turn share repurchases off and on as allowed by cash flow. The other projected uses of funds, however, are largely driven by business issues that are not as flexible for management. Students should notice that

You would not buy a home, car or other large purchases without researching what product offered you the most for your money. The same is true when investing in a company. Investors do avid research on multiple companies to find what company matches the investors' criteria. In this paper Team C will research both AT&T and Verizon's financial documents. Team C will compare selected ratios, cash flow and make recommendations how both companies can manage cash flow for the future.

35). The number of people in the precarious jobs is rising as corporations are constantly downsizing the firms. Downsizing of corporations leads to massive layoffs and diminishing of employment securities mentioned before. In the book “Liquidated: An Ethnography of Wall Street by Karen Ho”, it was described that the concentration on wealth maximization of shareholders has shifted the focus of managers away from the creation of real value of corporations towards the creation of stock market value. Increase in the stock market price is achieved when a corporation is perceived by the market to be efficient or on the way to efficiency.

The stock that I have analyzed is Apple (AAPPL), which it falls under the technology sector and trades under the NASDAQ. This sector holds the biggest companies around the world. A lot of these companies are well known such as: Amazon, Google, LinkedIn, and etc. The technology sector is an undeniably investment opportunity for every investor around the world. Lets face it technology keeps improving and we have only seen the beginning of it. These companies, such as Apple, are associated with constant innovation and invention. Our modern economy relies upon the technology sector to improve quality, productivity, and profitability.

From 1993 until the start of 1995, MCI’s stock had outperformed the S&P. However, in 1995, the stock’s performance was poorer than the S&P. With shareholder’s getting restless, the idea of a stock repurchase was being considered. Depending on which option MCI chooses—stock repurchase with debt issuance or open market repurchase program—the message being sent could be different. Let’s consider option one—MCI issues debt and uses the proceeds to repurchase stock. According to the article “Raising Capital: Theory and Evidence” by Clifford Smith, the market would likely react very positively to this leverage-increasing event. Because of the information disparity between a

The repurchase program increases the shareholder’s value. This is because of a rise in the price of the shares of the original shareholders.

In summary we recommend the share buy-back plan, as it will increase the value of the firm, shield part of income from taxes, increase return on equity and lowers agency cost. The increase in value of the firm and lower cash in hand also makes the firm less attractive target of a take-over.

There are several ways in which Apple could deal with the varied choices that it is facing. I believe that instead of introducing a new type of capital such as preferred stock, Apple can steadily increase its dividend quarter by quarter. This will attract new type of investors to the stock i.e. those that seek regular income such as pension funds, retirees etc. Increasing dividend would also signal that the Company is confident of its future growth plans because dividends are somewhat “sticky”. A new type of investor along with greater confidence that Apple might project through its commitment to increase dividends might lead to a boost in the share price. If Apple feels that it needs to return cash right now rather than showing its

Repurchasing shares with a 40% debt to total capital ratio would increase shareholder value, however repurchasing shares with an 80% debt to total capital ratio would significantly decrease shareholder value and therefore would not be advisable. Increasing debt increases shareholder value to a certain point. As this proforma shows, the point of diminishing return is somewhere between 40% and 80%.