Stock Repurchases May Be Interpreted by Investors as a Signal

question 6

Multiple Choice

Stock repurchases may be interpreted by investors as a signal that:

• A) future repurchases will be forthcoming.
• B) the firm's shares are underpriced.
• C) the firm has an increasing number of positive-NPV opportunities.
• D) stock repurchases will gradually replace the stock dividends.

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Definitions:

Discounted Payback Period

The period it takes for the cash flows from a capital investment project to equal the initial investment cost, considering the time value of money.

After-Tax Cash Flows

After-tax cash flows are the net cash inflows and outflows of a business after taxes have been accounted for, used in analysis of investment projects.

Liquidation

The process of bringing a business to an end and distributing its assets to claimants, often when the company is insolvent.

NPV

Net Present Value; a financial metric used in capital budgeting to analyze the profitability of an investment or project, calculated by the difference between the present value of cash inflows and outflows over a period of time.