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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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