Define treasury stock and provide two reasons why a corporation would purchase treasury stock
What will be an ideal response
Treasury stock is a corporation's own stock that it has previously issued and later reacquired. A corporation may purchase treasury stock for the following reasons:
1. Management wants to increase net assets by buying low and selling high.
2. Management wants to support the company's stock price.
3. Management wants to avoid a takeover by an outside party by reducing the number of outstanding shares that have voting rights.
4. Management wants to reward valued employees with stock.
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Although the direct method is easier to use, the Financial Accounting Standards Board (FASB) prefers the indirect method of reporting cash flows from operating activities
Indicate whether the statement is true or false
The NPV method assumes that cash inflows are reinvested at the:
A) internal rate of return. B) firm's cost of capital. C) average yield on corporate bonds. D) average yield from an equity index fund. E) risk-adjusted hurdle rate.