ACC 281 Week 4 DQ3 - 7428

Solution Posted by
3number
Solution Detail
Price: $2.00
  • From: ,
  • Posted on: Wed 11 Apr, 2012
  • Request id: None
  • Purchased: 0 time(s)
  • Average Rating: No rating
Request Description



Why do corporations buy back their own stock? What does it tell you about the corporation? What affect does the purchase have on the price of a company’s stock? If so, is this ethical? Explain why.

Why do corporations buy back their own stock?

 

There are a few reasons why corporations may buy back their own stock.  One reason would be to keep controlling interest in the corporation and not in shareholder’s hands.  Another reason, if they are sitting on cash and think the stock is under-valued, they will invest in their own corporation.  

 

What does it tell you about the corporation?  What affect does the purchase have on the price of a company’s stock? If so, is this ethical? Explain why.

 

By buying back its own stock and investing in its own corporation it creates demand and increases its earnings per share.  This strategy props up the price by increasing the buying demand.   This also provides them the opportunity to enjoy a gain in the exchange when they put those shares back into the market at a higher price thus helping to increase the Earning Per Share.  When corporations buy shares they are no longer considered outstanding, so the same amount of money is divided among less shares.  I believe this is an ethical because the corporation is trying to not spread itself too thin.  It is making sure that the corporation continues to operate effectively and also to continue growth.

 

 

 

Solution Description



Why do corporations buy back their own stock? What does it tell you about the corporation? What affect does the purchase have on the price of a company’s stock? If so, is this ethical? Explain why.

Why do corporations buy back their own stock?