The management of Krupt, Inc. decided to buy back 30% of the shares of stock outstanding. What effect would this have on the company's earnings per share? Why would management want to do this? Is this ethical?

What will be an ideal response?

Earnings per share will increase because the weighted average number of common shares outstanding will be reduced. Management may want to buy back its own stock to avoid a hostile takeover. This is ethical as long as management is acting in the best interest of the company's shareholders. It is considered unethical if management is doing this to increase its wealth at the expense of the shareholders.