In investors’ minds, Wilson’s share buyback could be a signal that the company:

A. is decreasing its financial leverage.

B. views its shares as undervalued in the marketplace.

C. has more investment opportunities than it could fund internally.

Janet Wu is treasurer of Wilson Paper Company, a manufacturer of paper products for the office and school markets. Wilson Paper is selling one of its divisions for \($70\) million cash. Wu is considering whether to recommend a special dividend of \($70\) million or a repurchase of 2 million shares of Wilson common stock in the open market. She is reviewing some possible effects of the buyback with the company’s financial analyst. Wilson has a long-term record of gradually increasing earnings and dividends. Wilson’s board has also approved capital spending of \($15\) million to be entirely funded out of this year’s earnings.

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Book value of equity Shares outstanding 12-month trading range Current share price After-tax cost of borrowing Estimated full year earnings Last year's dividends Target debt/equity (market value) $750 million ($30 a share) 25 million $25-$35 $35 7% $25 million $9 million 35/65