Is share repurchase is a good deal if after the repurchase, the share price increase from...

Is share repurchase is a good deal if after the repurchase, the share price increase from $114 per share to $117 per share and the total value of the firm increase from $16.2 million to $16.5 million? Discuss how share repurchase has affected the total value of the firm.

Expert Solution

Yes, the share repurchase is a good deal even after it can be seen that the prices of share has increased higher than the value of company as it can be seen that the prices of share has gone up by approximately 2.6 % whereas value of company has gone up by just 1.8%, and this can be attributed to the lower number of float and the lower number of shares which are available in the market after the share repurchase has been done.

Share repurchase had increased the value of the company by 1.8% in the following case and this increase can be attributed to the share repurchase as share repurchases are often done at a premium to the current market value so the market will be efficiently valuing the company higher because of the share repurchases and it would be leading to increase in the overall market capitalisation of the company as it can be seen in this case where the value of the company has increased, but it has not increased in the similar proportion to the increase in share price and that could be attributed to lower number of outstanding shares in the market because when the share repurchases done it will mean that there are a lower number of outstanding shares which are available in the market and hence the overall flotation of the company will be going down because the company will be buying back their shares and it would be leading to lower increase in the value of overall company in proportion to the increase in overall share price so we can be said that the value of company has increased.

share repurchase has affected the total value of the company by increasing the overall share price and decreasing the total outstanding number of shares but eventually it can still be seen that the total change in company market capitalisation value has been on the upside.

This had lead to positive impact on the company.

jeff jeffy answered 2 years ago

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