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NEW QUESTION: 1
A sound justification for an entity's repurchase of its own shares e.g. treasury shares) is to:
A. Lower the debt to equity ratio of the entity.
B. Increase the entity's total assets.
C. Reduce the idle cash and increase marketable securities.
D. Meet the share availability needs of a potential merger.
Answer: D
Explanation:
An entity has many reasons to repurchase its own shares. These include meeting the needs created by potential mergers or pension and profit-sharing plans. Also, management may want to buy out a dissident shareholder. Sometimes, an entity has excess cash and can find no better investment than its own shares. Moreover, management may believe the shares are selling for a low price for no apparent reason. Thus, a purchase may not only be a good investment but may also support the market price of the shares.