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Companies that do not repurchase their shares feel

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Unformatted text preview: of earnings is worth less to investors in the market. A volatile market will challenge a company that is intent on repurchasing its own shares. As with any investor, companies buying their own shares do not wish to overpay for their purchases. If a volatile market exists and stock prices are jumping all around, the company with a committed buyback program will be paying many different prices (some high, some low) for the shares it repurchases. c. Stock repurchases will reduce the company’s cash balances (affecting both liquidity and solvency) and will lower the company’s equity base (increasing leverage). Subsequent stock re­issuances will increase cash balances and equity levels, but the reissue price will determine if those equity levels will be fully restored. If the stock is reissued for a lower price than the acquisition price, a permanent hit to equity will occur (adjusted through Additional Paid In Capital, assuming APIC balances are sufficient). If, on the other hand, the stock is re­issued for a higher price, then an increase in equity balances will occur. d. Borrowing to repurchase...
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