When a company repurchases its own common stock, it is likely that
A) the stock price will remain the same as this is simply an internal transaction.
B) the stock price will increase because the company views the stock as undervalued.
C) the board of directors will be fired for incompetence.
D) the stock price will decrease because the company is creating artificial demand for its stock.
Question 2
California Retailing Inc has sales of 4,000,000; the firm's cost of goods sold is 2,500,000; and its
total operating expenses are 600,000. The firm's interest expense is 250,000, and the corporate tax
rate is 40.
The firm paid dividends to preferred stockholders of 40,000, and the firm distributed
60,000 in dividend payments to common stockholders. What is California Retailing's Addition to
Retained Earnings?
A) 290,000 B) 390,000 C) 650,000 D) 330,000
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