Topic_14_E1 - Topic 14, Exercise 1 Title: Share Repurchase....

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Topic 14, Exercise 1 Title: Share Repurchase. A recent article in CFO Magazine entitled, “The Buyback Catch,” discusses the concept of share repurchase as an alternative to payment of cash dividends. This article examines recent experience and offers insight into the factors that may drive a firm’s stock repurchase decision. After reading this article, answer the following questions: 1. The ideal time to buyback a company’s stock is when the market value has fallen appreciably. What is the “Buyback Catch” that is noted by the author? The best time to repurchase shares is when their prices are low. However, the catch is that depressed stock prices usually occur under poor financial and economic conditions. Stock prices tend to be low in bad economic times when firms are less likely to have as much liquidity and will likely be expecting less growth in sales. Also, credit conditions tighten during economic downturns. Therefore, while it is advantageous to purchase the stock at a low price, firms may not be able to act because of limited economic resources. 2.
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This note was uploaded on 09/13/2011 for the course FIN 6301 taught by Professor El-asmawanti during the Fall '09 term at University of Texas at Dallas, Richardson.

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