- CFA Exams
- CFA Level I Exam
- Topic 4. Corporate Issuers
- Learning Module 16. Analysis of Dividends and Share Repurchases
- Subject 5. Payout policies
CFA Practice Question
Which of the following would not be considered a disadvantage of a stock repurchase?
B. They may invite lawsuits from stockholders who had insufficient information about future prospects before selling.
C. The firm may pay too high a price for the repurchased stock.
D. They signal management's perception that the company's stock is currently undervalued.
A. They may not have the same positive effect on stock prices that a cash dividend would have.
B. They may invite lawsuits from stockholders who had insufficient information about future prospects before selling.
C. The firm may pay too high a price for the repurchased stock.
D. They signal management's perception that the company's stock is currently undervalued.
Correct Answer: D
One of the advantages of a stock repurchase is that it may signal management's perception that the firm's stock is undervalued.
User Contributed Comments 4
| User | Comment |
|---|---|
| quynhnk79 | Why B is correct? (in a sense that it would be considered as disadv? ) Is it inviting lawsuit? Why it could be? |
| thekapila | it is a disadvantage if lawsuit is filed against corporation. |
| tichas | @quynhnk79, look out for questions with double negatives and in this case ,not be and disadvantage. |
| nzee | good example of tricky question for those who sleep during exams ! |