Question

A company would repurchase its own stock for all of the following reasons except a. it needs the stock for employee bonuses. b. it wishes to make an investment in its own stock. c. it wishes to prevent unwanted takeover attempts. d. it wishes to improve the company's financial ratios.

Answer 1

The correct answer is letter "B": it wishes to make an investment in its own stock.

Step-by-step explanation:

Stock buyback refers to publicly traded companies purchasing stakeholders' shares. It lowers the market value of outstanding securities. It usually raises the stock price, based on basic market dynamics. Companies finance their buybacks with excess cash.

Firms repurchase their own stock to use them in employees' stock option programs, to increase ratios such as the Earnings Per Share (EPS), reduce cash to be paid to stakeholders as dividends or to reduce the possibilities of a takeover. The purpose of stock buybacks is not related to reinvesting in the firm's own stock.