Chartered Financial Analyst Level 2

Explanation

Fixed price tender offers typically have the highest cost for companies because:

• Premium Payment: Companies must offer a premium above the current market price to incentivize shareholders to tender their shares
• Fixed Price Risk: The company commits to buying shares at a predetermined price, regardless of any subsequent market price movements
• Limited Flexibility: Once the offer is made, the company is obligated to purchase all shares tendered at the fixed price

In contrast:

• Dutch auction tender offers allow companies to specify a price range, potentially resulting in a lower final purchase price
• Open market repurchases provide the most flexibility and typically occur at current market prices without premiums

The fixed price tender offer method involves paying a significant premium to attract shareholders, making it the most expensive repurchase method.