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Unformatted text preview: ck price. If the company’s performance (profitability, cash flow, leverage, etc.) is not changed but there are fewer shares of ownership, then each share would command a higher price as the total value of the company is divided among the equity providers. Driving up the share price strictly by reducing the number of shares outstanding is an artificial change as the company itself is no different. c. A company purchasing its own stock is in essence no different than an investor purchasing stock in the company. “Buy low, sell high” makes sense for any investor. If, due to current market levels, the stock price is high, there is always the risk that the buyer—the company in this case—would be buying high with the possibility that a market correction could drive the stock price down to low levels. The company, similar to any investor, would then be holding a stock with a market value below the cost paid to acquire the stock. If a company’s stock is at a historically low point, repurchasing stock does not pose the same risk. However, if the stock price is very high, the possibility exists that the company woul...
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