Question

Which of the following is true regarding the impact that a share repurchase program will have on a company's balance sheet?

a) SE will increase by market value of the repurchased shares
b) SE will decrease by the market value of the repurchased shares
c) SE will increase by the acquisition cost of the repurchased shares
d) SE will decrease by the acquisition cost of the repurchased shares

Answer 1

The impact of a share repurchase program on a company's balance sheet is a decrease in equity by the market value of the repurchased shares.

Step-by-step explanation:

The correct answer is b) SE will decrease by the market value of the repurchased shares.When a company repurchases its own shares, it reduces its equity because it is using its own funds to buy back those shares. This decreases the company's ownership in itself and reduces the amount of equity on the balance sheet.For example, if a company repurchases 1,000 shares at a market value of $10 per share, the total repurchase cost would be $10,000. This $10,000 would be deducted from the equity section of the balance sheet, causing a decrease in equity.In conclusion, a share repurchase program will lead to a decrease in equity on a company's balance sheet.