If a company buys back shares of their own stock at more than the intrinsic value...

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Question

If a company buys back shares of their own stock at more than the intrinsic value...

If a company buys back shares of their own stock at more than the intrinsic value per share they are

A. investing at the shareholders' required rate of return

B. destroying shareholder value for remaining shareholders

C. adding shareholder value for remaining shareholders

business finance

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Answer 1

Answer #1

At the required rate of return, the value of the share computed is equal to its intrinsic value.

So when a company buy back shares at the intrinsic value it's buying at Investors required rate of return.

If it pays less than the intrinsic value it creates the value of for remaining shareholders.

If it pays more than its intrinsic value it destroys the value of for remaining shareholders.

Answer: option B. destroying shareholder value for remaining shareholders.

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Answer 2

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