EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202778
Author: DeMarzo
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Question
Chapter 17.6, Problem 2CC
Summary Introduction
To discuss: Whether the manager is likely to repurchase shares and if the value of stocks are undervalued or overvalued.
Introduction:
Share repurchase is an alternative method to pay the cash to the company’s investors by way of buying back of shares. Stock repurchase is where the company purchases its own shares, which is still outstanding.
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You observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency?
What does it mean to say that managers should maximize shareholders' wealth "subject to ethical constraints"? What ethical considerations might factor into decisions that result in lower cash flow and stock price effects than they might have otherwise been valued?
Which of the following would not be an appropriate reason for a firm to repurchase its stock:
As an investment if management believes the market has undervalued the stock price.
In order to have sufficient shares to cover employee stock programs.
Solely to boost Earnings Per Share.
Both A and B.
Chapter 17 Solutions
EBK CORPORATE FINANCE
Ch. 17.1 - Prob. 1CCCh. 17.1 - Prob. 2CCCh. 17.2 - Prob. 1CCCh. 17.2 - In a perfect capital market, how important is the...Ch. 17.3 - Prob. 1CCCh. 17.3 - Prob. 2CCCh. 17.4 - Prob. 1CCCh. 17.4 - Prob. 2CCCh. 17.5 - Is there an advantage for a firm to retain its...Ch. 17.5 - Prob. 2CC
Ch. 17.6 - Prob. 1CCCh. 17.6 - Prob. 2CCCh. 17.7 - Prob. 1CCCh. 17.7 - Prob. 2CCCh. 17 - Prob. 1PCh. 17 - ABC Corporation announced that it will pay a...Ch. 17 - Prob. 3PCh. 17 - RFC Corp. has announced a 1 dividend. If RFCs...Ch. 17 - Prob. 5PCh. 17 - KMS Corporation has assets with a market value of...Ch. 17 - Natsam Corporation has 250 million of excess cash....Ch. 17 - Suppose the board of Natsam Corporation decided to...Ch. 17 - Prob. 9PCh. 17 - Suppose BE Press paid dividends at the end of each...Ch. 17 - The HNH Corporation will pay a constant dividend...Ch. 17 - Prob. 12PCh. 17 - Prob. 13PCh. 17 - Prob. 14PCh. 17 - Suppose that all capital gains are taxed at a 25%...Ch. 17 - Prob. 16PCh. 17 - Prob. 17PCh. 17 - Prob. 18PCh. 17 - Prob. 19PCh. 17 - A stock that you know is held by long-term...Ch. 17 - Clovix Corporation has 50 million in cash, 10...Ch. 17 - Assume capital markets are perfect. Kay Industries...Ch. 17 - Redo Problem 22., but assume that Kay must pay a...Ch. 17 - Harris Corporation has 250 million in cash, and...Ch. 17 - Redo Problem 22, but assume the following: a....Ch. 17 - Prob. 26PCh. 17 - Use the data in Table 15.3 to calculate the tax...Ch. 17 - Explain under which conditions an increase in the...Ch. 17 - Why is an announcement of a share repurchase...Ch. 17 - AMC Corporation currently has an enterprise value...Ch. 17 - Prob. 31PCh. 17 - Prob. 32PCh. 17 - Explain why most companies choose to pay stock...Ch. 17 - Prob. 34PCh. 17 - Prob. 35P
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- Explain how managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.arrow_forwardIs it repurchase shares good for growth company, that does not pay dividends, and have undervalued stock, and have a future investment opportunities? or should maintain its liquidity to fund its investment rather than repurchase shares?arrow_forwardWhat does it mean to say that managers should maximize shareholder wealth "subject to ethical constraints"? What ethical considerations might enter into decisions that result in cash flow and stock price effects that are less than they might otherwise have been?arrow_forward
- Why might a company repurchase its own stock? A) It believes that the market undervalues its shares B) To offset dilutive effects of employee stock options granted C) To recognize an economic gain when the treasury shares are later sold for a profit D) To improve earnings per share by reducing the denominator E) All of the above is it just A and B or is it all of the abovearrow_forwardWhy might a rational investor invest in the stock of a company that pays no dividend?arrow_forwardHow is it possible for an employee stock option to be valuable even if the firm’s stock price fails to meet shareholders’ expectations?arrow_forward
- What is the value of Ls stock for volatilities between 0.20 and 0.95? What incentives might the manager of L have if she understands this relationship? What might debtholders do in response?arrow_forwardWhat is the possible agency conflict between inside owner/managers and outside shareholders? What are some possible agency conflicts between borrowers and lenders? How is it possible for an employee stock option to be valuable even if the firm’s stock price fails to meet shareholders’ expectations?arrow_forwardEvaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on the short term profits at the expense of long-term profits.arrow_forward
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