Question

Economic 315: Money, Banking and Financial Market

1. Is there any relationship between increase in corporate debt and corporate investing? Explain.

2. What is the alternative to investing that money in their corporations?

3. What is the purpose of stock buybacks?

4. Do you think stock buybacks are the good for the economy? Why or why not?

Answer 1

(1). Relationship between increases in corporate debt and corporate investing –

            Corporate debt is the amount of money that is owned by the companies rather than governments on the individual.

            Where a corporate investment is an investment that is invested by the companies rather than the government or individual.

            In both debt and investing sector is depending on the company’s condition rather than other sector or individual. If the investment is higher than corporate debt also higher.

(2). Alternative to investing that money in their corporation –

            There are four investment types –

            (a). Growth investment is for long term investment.

            (b). Property is also a growth investment.

            (c). Cash or fixed deposit also invested in the corporative world.

            (d). Dividends, rental income, also invest in the corporative world.

(3). Purpose of stock buyback –

            A stock buyback is a share repurchase that occurs when a company buyback from its market place. A company re-invests in itself.

            At a particular time, buyback is the best to use of capital. The firm wants to maximize return for shareholders and buyback increase the shareholder value.

(4).Impact of buyback in the economy –

            Yes, it benefits able for long term shareholders. It can boost EPS. It decreases outstanding share count when market buys their own stock, which is gainful for the investors to sell their share. It can reduce its cost of capital which gives benefit from undervaluation stock.