GHI Co Has Just Announced That the Board Has Reached a a Targeted

question 17

Multiple Choice

GHI Co. has just announced that the board has reached a targeted stock repurchase agreement with a large stockholder. The company will repurchase all of the large investor's stock for 90 percent of the current market value. When the stock repurchase was announced, the shares of GHI Co. fell by 7 percent. Which one of these explanations could reasonably explain the drop in share price?

• A) The willingness of the large investor to accept the targeted stock repurchase signals that the large investor believes the company will not do well in the future.
• B) A targeted stock repurchase essentially transfers value from the average investor to the targeted investor.
• C) Investors believe that the company's management is entrenching itself by buying off any large block shareholders.
• D) Both a and c are possible explanations.

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Definitions:

Revaluation

Revaluation is an adjustment to the carrying value of a currency, asset, or liability to reflect its current market value.

Revaluation

The process of adjusting the carrying value of an asset or liability to reflect its current market value.

Journal Entries

Records that detail all the financial transactions of a business, used in the double-entry bookkeeping system.

Accounting Standards for Private Enterprises

Specific accounting guidelines tailored for private companies to ensure transparency, comparability, and clarity in financial reporting.