Question

In: Accounting

P14–19Ethics Problem Assume that you are the CFO of a company contemplating a stock repurchase next...

P14–19Ethics Problem Assume that you are the CFO of a company contemplating a stock repurchase next quarter. You know that there are several methods of reducing the current quarterly earnings, which may cause the stock price to fall prior to the announcement of the proposed stock repurchase. What course of action would you recommend to your CEO? If your CEO came to you first and recommended reducing the current quarter’s earnings, what would be your response?

Solutions

Expert Solution

Ans. If company was to repurchase stock next quarter and as a CFO of company whether it is ethical to recommend to reduce current quarterly earnings by using several methods to repurchase the stock at lesser price for company using insider information. The answer is that it is unethical to reduce current quarterly earnings to cause fall in stock prices to reduce the purchase cost. Here company is using insider information to benefit company in terms of reduce payment for repurchase of it's stock. Not only it is unethical, but it is also crime to use the insider information for manipulating stock prices using insider information. This method of reducing stock prices should not be recommended to CEO for stock repurchase of company. The answer would remain same even if CEO comes first and recommends reducing the current quarter’s earnings because it will not change the fact that here company is manipulating it's financials to repurchase it's stock at lesser price.      

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Assume that you are the CFO of a company contemplating a stock repurchase next quarter. You...
Assume that you are the CFO of a company contemplating a stock repurchase next quarter. You know that there are several methods of reducing the current quarterly earnings, which may cause the stock price to fall prior to the announcement of the proposed stock repurchase. What course of action would you recommend to your CEO? If your CEO came to you first and recommended reducing the current quarter’s earnings, what would be your response? Your initial posting should be 250-500...
3. You are the CFO of a company that is contemplating issuing dividends for the first...
3. You are the CFO of a company that is contemplating issuing dividends for the first time. Discuss, in as much detail you can, at least six issues you must consider when you structure a company’s dividend policy. Please structure your answer according to the theories and discussion in your text. (No more than 4 pages).
3.         You are the CFO of a company that is contemplating issuing dividends for the first...
3.         You are the CFO of a company that is contemplating issuing dividends for the first time. Discuss, in as much detail you can, at least six issues you must consider when you structure a company’s dividend policy. Please structure your answer according to the theories and discussion in your text. (No more than 4 pages).
In this assignment assume you are a CFO of a small manufacturing company and the CEO...
In this assignment assume you are a CFO of a small manufacturing company and the CEO wants your input the value of budgeting. Write a three page memo to the CEO explaining the purpose, basic components of the budget, and the benefits of a budget. As an appendix to your memo, discuss the capital budget process (purpose and value) and the various methods used to evaluate capital investment projects, including the pros and cons of each method. Include in your...
Assume that a stock just paid a dividend of $2.05. You believe that for the next...
Assume that a stock just paid a dividend of $2.05. You believe that for the next three years the growth rate will be 8%. After that you believe the company’s growth will slow to a long-run growth rate of 3%. The required return on the firm’s equity is 9%. What is your estimated value of the stock?
Assume you are the CFO of a company. Your analyst reports the following information (Use the...
Assume you are the CFO of a company. Your analyst reports the following information (Use the following information for the remainder of the question): • Current exchange rate is $1.16/€. • Forward rate is $1.175/€. • Expected final sales volume is 35,000. Worst case scenario is volume of 15,000. Best case scenario is volume of 50,000. • Cost per student is €2000. • Option premium is 2% of USD strike price. • Option strike price is $1.165/€. 1. Using the...
You are the CFO of MacroWare Company. Your company’s stock is traded in the NYSE. Your...
You are the CFO of MacroWare Company. Your company’s stock is traded in the NYSE. Your company wants to invest in a telecommunication technology. You were told by the operation and marketing departments that the project is very promising. You are considering the finance department’s suggestion to issue stocks to finance the project.    As a leader of the company, your objective is supposed to _____.   a. maximize the company’s earnings b. maximize the company’s earnings per share c. maximize...
The Kim Su Company is planning to repurchase shares of common stock with the proceeds of...
The Kim Su Company is planning to repurchase shares of common stock with the proceeds of a $50,000,000 debt issue. The interest rate on the debt is expected to be 10%. Currently, Kim Su is unlevered with 12,000,000 common shares outstanding. The price-earnings ratio of the common shares is 5 on pre-tax operating income of $30,000,000. The equity has a required rate of return of 20% based on an equity beta of 1.20. Assuming the company’s tax rate is 34%,...
For each of the following, state whether True or False: If you repurchase stock at an...
For each of the following, state whether True or False: If you repurchase stock at an amount less than its original issue price, you can record a gain. If you repurchase stock and then reissue it at a higher price, you can record a gain. Interest expense is computed using the effective rate of interest, not the stated rate. Cash interest paid is computed using the stated rate of interest, not the effective rate. Non-interest-bearing notes payable have no interest...
The Martin company plans on using their ST investments to repurchase shares of stock. What will...
The Martin company plans on using their ST investments to repurchase shares of stock. What will the intrinsic per share stock price be immediately after the repurchase? How many shares will remain outstanding? Value of Operations $500,000,000 Short term investments $40,000,000 Debt $140,000,000 Number of shares 4,000
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT