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LOS l: Discuss the rationales for share repurchases and explain the signals that share repurchases may generate.
Q1. All of the following are reasons for a stock repurchase EXCEPT:
A) investors see repurchases as a signal that shares are overvalued.
B) the corporation may purchase its shares at a bargain.
C) repurchases can be used to decrease supply of the stock, thus increasing the share price.
Q2. Belden Engineering Corporation (BEC) is considering a share repurchase program. David Gudzanski, the firm’s executive vice president prepares a memo to the board of directors detailing reasons why a share repurchase would be favorable at this time. Reasons listed in the memo are as follows:
Reason 1: The resulting capital structure from the share repurchase would be more favorable for investors in BEC’s bonds.
Reason 2: BEC’s stock is currently selling at $37 in the marketplace. Our discounted cash flow analysis values the company at $48 per share.
Reason 3: The share repurchase could be used to offset dilution caused by the exercise of employee stock options.
Reason 4: BEC can use the repurchase to send a signal to investors that management has a positive future outlook for the company.
Reason 5: The share repurchase could be used to implement a residual dividend policy while diminishing the potential increase in perceived risk that such a policy would cause for investors.
Which of Gudzanki’s reasons in favor of the share repurchase is most accurate?
A) Reasons 2 and 3 only.
B) Reasons 2, 3, 4, and 5.
C) Reasons 1 and 3 only. | 
发表于 2009-3-4 14:56
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