Suppose that a company has had an extraordinarily profitable year, and it announces that it will...
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Suppose that a company has had an extraordinarily profitable year, and it announces that it will use most of its net cash inflow to buy back shares of its stock in the market. Would you expect the price of its stock to rise or fall when the announcement is made? What if instead the company decides to give dividends to their shareholders? Would the shareholder's wealth be affected differently in a world with no frictions? Explain. (10pts) Suppose that a company has had an extraordinarily profitable year, and it announces that it will use most of its net cash inflow to buy back shares of its stock in the market. Would you expect the price of its stock to rise or fall when the announcement is made? What if instead the company decides to give dividends to their shareholders? Would the shareholder's wealth be affected differently in a world with no frictions? Explain. (10pts)
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Answer rating: 100% (QA)
When a company announces a share buyback it indicates that the company believes its stock is undervalued and wants to repurchase shares from the marke... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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