Question

a. Define the term: Share Repurchase.

b. What are the reasons for Share Repurchase?

please answer all parts of the question clearly and in your own words

Answer 1

a. A share repurchase is a transaction in which a company buys back its own shares from the open market.

b. Some of the reasons of share repurchase include:

1) The company's management feels that the share price is too undervalued and want to increase it

2) If a company has very high amount of cash with it, it prefers purchasing it's own shares since keeping large amount of idle cash is costly

3) It makes the financials of a company look attractive. This is because all the ratios alchange for better once share buyback is done. Since the number of shares outstanding reduces, the Earnings per share and other ratios improve, thus leading to better financial statements.