Question

Which statement is correct ? A) Stock repurchases increase the number of shares and make it...

Which statement is correct ?

A) Stock repurchases increase the number of shares and make it difficult to forecast

dividends per share

B) Stock repurchases do not add value to a business and can be ignored.

C) Stock repurchases invalidate the dividend discount model

D) When there are repurchases, it is simpler to value a business by discounting the

free cash flow.

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Homework Answers

Answer #1

Option(d)is correct.

Reason stock repurchase decrease the number of the shares held by public and dividend can be forecast even after repurchase of shares.

It affect the value of company and it should not be ignored.

Stock repurchase doesn't invalidate DDM model because there are many author state that DDM can be used for the valuation in for valuing firm which repurchase or buy it's shares.

Yes it is easy to use free cash flow for valuing firm shares by using free cash flowapproach of calculation of shares price or value..

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