Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Question
Chapter 17, Problem 2CRCT
Summary Introduction
To discuss: The impact of stock repurchase on debt ratio and the ways to use excess cash.
Introduction:
Stock repurchase is also termed as buyback of shares. Stock repurchase is where the company repurchases its own stock, which is outstanding. Tax implication in the stock repurchase is lesser compared to the cash dividend.
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Students have asked these similar questions
Ay 2.
What is the impact of a stock repurchase on a LO 4 14.2 14.3 company's debt ratio? Does this suggest another use for excess cash?
[10] True or False (Provide explanation). The dividend discount model may be used even if a company does not pay dividends regularly.
Question 27
Which of the following is NOT a potential use of Free Cash Flow to the
Firm (FCFF)?
Pay down long-term debt
All of the above are potential uses of FCFF
Buy non-operating assets
Pay for capital expenditures (CAPEX)
Buy back common stock
Pay dividends to shareholders
Chapter 17 Solutions
Fundamentals of Corporate Finance
Ch. 17.1 - Prob. 17.1ACQCh. 17.1 - What are the mechanics of the cash dividend...Ch. 17.1 - How should the price of a stock change when it...Ch. 17.2 - How can an investor create a homemade dividend?Ch. 17.2 - Prob. 17.2BCQCh. 17.3 - Prob. 17.3ACQCh. 17.3 - Why do flotation costs favor a low payout?Ch. 17.4 - Why might some individual investors favor a high...Ch. 17.4 - Prob. 17.4BCQCh. 17.5 - How does the market react to unexpected dividend...
Ch. 17.5 - Prob. 17.5BCQCh. 17.6 - Prob. 17.6ACQCh. 17.6 - Prob. 17.6BCQCh. 17.8 - Prob. 17.8ACQCh. 17.8 - How does the accounting treatment of a stock split...Ch. 17 - Dividends are paid to the parties listed as...Ch. 17 - Prob. 17.3CTFCh. 17 - Prob. 17.4CTFCh. 17 - Prob. 17.8CTFCh. 17 - Dividend Policy Irrelevance [LO2] How is it...Ch. 17 - Prob. 2CRCTCh. 17 - Prob. 3CRCTCh. 17 - Prob. 4CRCTCh. 17 - Prob. 5CRCTCh. 17 - Prob. 6CRCTCh. 17 - Prob. 7CRCTCh. 17 - Prob. 8CRCTCh. 17 - Prob. 9CRCTCh. 17 - Prob. 10CRCTCh. 17 - Prob. 1QPCh. 17 - Prob. 2QPCh. 17 - Prob. 3QPCh. 17 - Prob. 4QPCh. 17 - Regular Dividends [LO1] The balance sheet for...Ch. 17 - Prob. 6QPCh. 17 - Prob. 7QPCh. 17 - Stock Dividends [LO3] The company with the common...Ch. 17 - Stock Splits [LO3] In the previous problem,...Ch. 17 - Homemade Dividends [LO2] You own 1,000 shares of...Ch. 17 - Prob. 11QPCh. 17 - Stock Repurchase [LO4] Galles Corporation is...Ch. 17 - Expected Return, Dividends, and Taxes [LO2] The...Ch. 17 - Dividends and Taxes [LO2] As discussed in the...Ch. 17 - Prob. 15QPCh. 17 - Dividends versus Reinvestment [LO2] After...Ch. 17 - Prob. 1MCh. 17 - Prob. 2MCh. 17 - Prob. 3MCh. 17 - Prob. 4MCh. 17 - Prob. 5MCh. 17 - Prob. 6M
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Similar questions
- Question 5In the absence of market imperfections and taxes, stock repurchases are same as cash dividends. How does this change in real world circumstances and what effect does a stock repurchase announcement have on stock price?arrow_forwardhow do banks improve their net profit margin to increase Return on Equity? what are the risk implications ?arrow_forwardWhat is WACC? Why do firms compute it? What happens to WACC when the debt level of a firm changes?arrow_forward
- Is it better to finance a company thru debt or thru equity? Why? What are the downside and upside to each?arrow_forwardMf4. Q4.How does the inflation affect a company’s cost of capital? Please include your arguments and examples!arrow_forward[3C] Direction: Solve the problem. Show your neat and complete solutions. Why do stock companies prefer equity financing in raising money for their operations than debt financing? Distinguish the two.arrow_forward
- How does asymmetric information and financial innovation cause a financial crises?arrow_forwardWhy does the WACC decrease as a firm begins to take on debt and then increase after a certain point?arrow_forwardp12 According to the pecking order theory, managers are less likely to use which of the following sources of financing? Retained earnings New preferred stock New common stock New debtarrow_forward
- True or False, pls explain why 12) Stock repurchase is one of the ways to increase a firm's debt to equity ratio True Falsearrow_forward2. The Trade-Off Model A. "The trade-off model of debt financing implies that an increase in the interest rate on debt will cause the level of debt to decline." Do you agree or disagree? Please explain. B. Discuss the likely effects of an increase in uncertainty about cash flows on the responsiveness of a firm's debt level to changes in the interest rate on debt.arrow_forwardWhat are the risk implications/shortcomings of financial institutions in increasing their financial leverage to increase return on equity?arrow_forward
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