Activision became a public company with an initial public offering of stock on June 9, 1983,at $12 per share. In June 2002, Activision issued 7.5 million additional shares to the public atapproximately $33 per share in a seasoned new issue. In October 2002, when its stock was tradingat about $22 per share, Activision executives announced that the company would spend up to $150million to reacquire stock from investors. On January 8, 2003, The Wall Street Journal reportedthat several analysts were criticizing Activision’s executives because the company had issued theshares to the public at a high price ($33) and then were offering to reacquire them at the goingstock market price, which was considerably lower than the issue price in 2002.Required:1. Do you think it was inappropriate for Activision to offer to reacquire the stock at a lower stockprice in October 2002?2. Would your answer to requirement 1 be different if Activision had not issued additional stockin June 2002?3. The above Wall Street Journal article also reported that, in December 2002, Activision executives had purchased, for their own personal investment portfolios, 530,000 shares of stock inthe company at the then-current price of $13.32 per share. If you were an investor, how wouldyou feel about executives buying stock in their own company?4. Would your answer to requirement 3 be different if you also learned that the executives haddisposed of nearly 2.5 million shares of Activision stock earlier in the year, when the pricewas at least $26.08 per share?

Activision became a public company with an initial public offering of stock on June 9, 1983,
at $12 per share. In June 2002, Activision issued 7.5 million additional shares to the public at
approximately $33 per share in a seasoned new issue. In October 2002, when its stock was trading
at about $22 per share, Activision executives announced that the company would spend up to $150
million to reacquire stock from investors. On January 8, 2003, The Wall Street Journal reported
that several analysts were criticizing Activision’s executives because the company had issued the
shares to the public at a high price ($33) and then were offering to reacquire them at the going
stock market price, which was considerably lower than the issue price in 2002.
Required:
1. Do you think it was inappropriate for Activision to offer to reacquire the stock at a lower stock
price in October 2002?
2. Would your answer to requirement 1 be different if Activision had not issued additional stock
in June 2002?
3. The above Wall Street Journal article also reported that, in December 2002, Activision executives had purchased, for their own personal investment portfolios, 530,000 shares of stock in
the company at the then-current price of $13.32 per share. If you were an investor, how would
you feel about executives buying stock in their own company?
4. Would your answer to requirement 3 be different if you also learned that the executives had
disposed of nearly 2.5 million shares of Activision stock earlier in the year, when the price
was at least $26.08 per share?