When a Firm Declares a Stock Repurchase

question 52

Multiple Choice

When a firm declares a stock repurchase:

• A)The number of outstanding shares falls along with the price
• B)The number of outstanding shares falls and the price remains unchanged
• C)An investor will receive cash in exchange for a smaller %age of ownership
• D)Demand drives the stock price up

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Definitions:

M&M II

Modigliani and Miller Proposition II, a theory on capital structure, posits that the value of a firm is not affected by its capital structure under a certain market process.

Bankruptcy Costs

Expenses associated with the process of declaring bankruptcy, including legal fees, filing fees, and other related costs.

Administrative Expenses

Costs related to the general operations of a business that are not directly tied to a specific project or product.

Tax-Related Gains

Profits derived from tax strategies, deductions, or credits that reduce the overall tax liability.