Here is the discussion question and two forms of the answer. Please answer the question using the two answers I have provided for assistance. In other words, take the two answers, combine them and, rewrite them to create a new answer. Please use one reference. Thank you
(Discussion Question)
The workbook presented a story about Janet Wu, the treasurer of Wilson Paper Company. If you were an investor in Wilson Paper Company, would you be happy with an open market repurchasing of shares? Why or why not? Support your stance using evidence from the story and information from the chapter.
(Answer 1)
When considering the being an investor in the Wilson Paper Company there are different factors to considered. What will be the value of the stock when purchasing and the value after the stock is repurchased.
According to the authors Clayman, Fridson, Troughton, Scalan ,(2011) the value of the stock is $30 a share, but the cost is $35 a share. Stock repurchase increases in volume when the economy is steady, creating profits for companies to have more cash.
According to Investopedia, repurchasing of shares of stocks from a company who original sold the shares is considered stock buybacks. This process is demonstrated when the original company who issued the stock pays market values to shareholders for the stock that is undervalued and reissue the stock when the market is corrected. The company increases its equity capital without issuing any additional shares.
Reference
Clayman, Michelle; Fridson, Martin; Troughton, George; Scanlan, Matthew.(2011).Corporate Finance:
A Practical Approach,2nd Edition. John Wiley & Sons
Stock Buybacks. (2016). Investopedia.com
(Answer 2)
A company can return wealth to its shareholders by stock price appreciation and dividends (Jansen, 2015). It is a good idea for share repurchasing because this means the company is investing in itself by using cash to buy its own shares (Jansen, 2015). The company absorbs the repurchased shares and any outstanding shares will be reduced in the market. Essentially, investor ownership stake increases with fewer shares on the earnings of the company (Jansen, 2015).
According to Clayman, Fridman, and Troughton (2012), the dividend policy of share repurchasing has many advantages that include tax advantages, share price support/signaling of a good investment, added managerial flexibility, offsetting dilution from employee stocks, and increasing financial leverage. In addition, the uses of repurchasing of shares are used to improve financial rations (balance sheet, ROA, ROE) and when the market has discounted share price too steeply. Repurchasing of shares would be good for stock that is undervalued and marked as a positive sign for shareholders. However, repurchasing of shares for short-term relief to pump up ratios to fix an ailing stock price or getting out of dilution has the opposite effect (Jansen, 2015).
References
Clayman, M., Fridson, M., & Troughton, G. (2012). Corporate finance. A practical approach. Second Edition. John Wiley & Sons, Inc. Hoboken, New Jersey.
Jansen, C. (2015). Stock buybacks: breakdown. Investopedia. Retrieved from http://www.investopedia.com/articles/02/041702.asp
(Answer 2)
A company can return wealth to its shareholders by stock price appreciation and dividends (Jansen, 2015). It is a good idea for share repurchasing because this means the company is investing in itself by using cash to buy its own shares (Jansen, 2015). The company absorbs the repurchased shares and any outstanding shares will be reduced in the market. Essentially, investor ownership stake increases with fewer shares on the earnings of the company (Jansen, 2015).
According to Clayman, Fridman, and Troughton (2012), the dividend policy of share repurchasing has many advantages that include tax advantages, share price support/signaling of a good investment, added managerial flexibility, offsetting dilution from employee stocks, and increasing financial leverage. In addition, the uses of repurchasing of shares are used to improve financial rations (balance sheet, ROA, ROE) and when the market has discounted share price too steeply. Repurchasing of shares would be good for stock that is undervalued and marked as a positive sign for shareholders. However, repurchasing of shares for short-term relief to pump up ratios to fix an ailing stock price or getting out of dilution has the opposite effect (Jansen, 2015).
References
Clayman, M., Fridson, M., & Troughton, G. (2012). Corporate finance. A practical approach. Second Edition. John Wiley & Sons, Inc. Hoboken, New Jersey.
Jansen, C. (2015). Stock buybacks: breakdown. Investopedia. Retrieved from http://www.investopedia.com/articles/02/041702.asp
