There is a debate about stock repurchases whether they are liked by
investors or not. Some...

Question

There is a debate about stock repurchases whether they are liked by 
investors or not. Some investors like it because of tax treatments etc. 
and some other don’t because of changes in ownership etc. Many firms 
issue debt to finance their stock repurchases. Issuing debt is another 
controversial topic. Too much debt might harm equity investors but at 
the same time, it saves the issuing firm’s tax dollars. Also, debt is 
almost always cheaper than equity. Thus by issuing debt and using that 
money to buy back shares might lower a firm's cost of capital. Overall, 
the net effect of these capital restructuring decisions is unknown. Find
 a firm that issued debt and used those proceeds to repurchase its 
stock. Summarize the stock market reaction before the repurchase was 
announced and after the debt was issued and stocks were repurchased. 
Your summary should not exceed two pages.

Robert · Accepted Answer

Answer 
Share repurchase plan can increase the ownership in a company by reducing the number of shares 
outstanding. Where a company reduces the amount of shares outstanding, the value of each of 
investor’s share increases and it represents a greater percentage of equity in the business. Even 
though stock buybacks and share repurchases can be huge sources of long-term profit for investors, 
they can be harmful if a company pays more for its stock than it is worth of if it uses money which it 
can’t afford to spend. Instead, the company should put the money into assets that can be easily 
converted into cash. Using this approach, when the market moves the other way and is trading 
below its true value, shares of the company can be bought back up at a discount, giving shareholders 
maximum benefit. 
 Buybacks affect value of share in two ways: 
1. The buyback announcement, its terms, and the way it is implemented all convey signals 
about the company's prospects and plans. 
2. When financed by a debt issue,

There is a debate about stock repurchases whether they are liked by investors or not. Some investors like it because of tax treatments etc. and some other don’t because of changes in ownership etc....

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