Asked by arjun trivedi on Apr 30, 2024
Verified
If you ignore taxes and transaction costs, a stock repurchase will reduce the total equity of a firm.
Total Equity
The sum of the ownership interest in a corporation, including common and preferred shares.
Stock Repurchase
The process by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares.
- Understand the consequences of share buybacks on a company's earnings per share and equity.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
True
Explanation :
When a company repurchases its own stock, it uses cash (an asset) to buy back shares, which reduces the total shareholders' equity on the balance sheet because it decreases both assets (cash) and equity (shares outstanding are reduced).
Learning Objectives
- Understand the consequences of share buybacks on a company's earnings per share and equity.