Final answer:
The statement that firms tend to repurchase shares when they view them as undervalued is true. This can signal to the market the firm's belief in their stock and potentially increase the stock's value through reduced availability.
Step-by-step explanation:
Firms tend to repurchase shares of their outstanding stock when they view the shares as undervalued. The statement provided to the student's question is A) True. When a company believes its stock price does not reflect its true value or that the stock is being traded at a price lower than it should be, it may repurchase its shares. This action can send a signal to the market that the company believes its stock is a good investment at the current price.
Also, repurchasing shares can help increase the stock's value by reducing the number of shares available in the market, thus potentially increasing earnings per share. This is in contrast to the initial public sale of shares, which involves raising capital by selling ownership in the company to the public. Once shares are sold to the public, subsequent transactions between individual investors do not involve financial return to the company itself. Capital gains are realized by investors when they sell shares at a higher price than they originally purchased them.