Why might a stock dividend or a stock split be of limited value to an investor? What about a stock repurchase? Companies have been spending trillions of dollars to repurchase their own shares in recent years. Why do they do so? Does it make sense for a corporation to repurchase its own stock? Explain.

Why might a stock dividend or a stock split be of limited value to an investor? What about a stock repurchase? Companies have been spending trillions of dollars to repurchase their own shares in recent years. Why do they do so? Does it make sense for a corporation to repurchase its own stock? Explain.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 14QTD

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Why might a stock dividend or a stock split be of limited value to an investor? What about a stock repurchase? Does it make sense for a corporation to repurchase its own stock?
When a company participates in a stock buyback program, it means that the company is buying shares of its own stock and taking them off the market. With this simple definition in mind, how would a company's stock buyback program affect its Earnings per Share?
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For what reason might a company purchase treasury stock? To increase shareholder liquidity To execute an acquisition through a share exchange To increase the number of outstanding shares of stock To reduce future income taxes
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We have valued stocks of publicly traded corporations as perpetuities. Is this a reasonable method? Since an investor will likely not own the stock forever, would it make more sense to just value a dividend stream for the next three years and then assume the stock is sold?
1. Discuss the implication of share Buybacks and Stock Options on the value of a company? 2. Discuss what recommendations you would have for a company like Bed, Bath, & Beyond, who spent 100's of millions of dollars on Share buybacks, which resulted them going bankrupt.
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