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Question 9.RQ.1: Why should a business wish to buy back some of its shares?

Why should a business wish to buy back some of its shares?

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Where it is appropriate to make an extraordinary distribution to shareholders, buybacks may be preferable to dividends. Managers are usually reluctant to increase dividends in one period and then decrease them in a subsequent period. Such extraordinary distributions include:

  • dealing with undervalued shares
  • returning surplus cash to shareholders
  • adjusting the capital structure.

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Question: 9.Act.3

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