In which of the following situations might a stock repurchase result in decrease
ID: 2798227 • Letter: I
Question
In which of the following situations might a stock repurchase result in decreased firm value? A Stock repurchases never increase or decrease the value of the firm B when a firm does an open market, rather than an auction-based, repurchase when a firm without any positive NPV projects executes a repurchase to distribute cash flow to the shareholders when a firm executes a targeted repurchase in order to buy back shares from specific shareholders at above-market prices excess A firm has 300 stockholders, each of whom own $100 in shares. f the firm uses $10000 t repurchase shares, how many stockholders would remain, and what would be the value of the shares? A 200 shareholders with shares worth $100 B 300 shareholders with shares worth $66.67 C 200 shareholders with shares worth $133.33 D 200 shareholders with shares worth $66.67 irm has 900 shareholders, each of whom own $47 in shares. The firm uses urchase shares. What percentage of the firm did each of the remainings re the repurchase, and what percentage does each own now? ,11% before; 0.17% after 1 7% before; 0.17% after , o 23% afterExplanation / Answer
1.) Situation in which stock purchase will result in decreased firm valuation is when a firm executes a targeted repurchase in order to buyback from specific shareholders at above market prices.
Buying at higher valuations result in higher cash outflows which could have been utilized somewhere else to generate value for the business.
Hence, option-d is the right answer.
2.) Number of Stockholders =300
Each Shareholder Value owned =$100
Total Valuation =$300x100=$30,000
Repurchase amount =$10,000
Shares repurchases =$10,000/100=100
Number of Shares after repurchase =300-100 =200
Hence, option-a is the right answer