Chartered Financial Analyst Level 2
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- Which of the following share repurchase methods provides a company with the most flexibility?
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A
Dutch auction
B
Fixed price tender offer
C
Open market repurchase
Explanation:
Explanation
Open market repurchase provides the most flexibility because:
- Timing Control: The company can buy shares over an extended period at its discretion
- Price Flexibility: Purchases occur at prevailing market prices without fixed price commitments
- Quantity Control: The company can adjust the number of shares purchased based on market conditions and cash availability
- No Obligation: Unlike tender offers, there's no obligation to complete the entire repurchase program
In contrast:
- Fixed price tender offers lock the company into a specific price and quantity
- Dutch auctions require setting price ranges and have specific timeframes
Open market repurchases allow companies to be opportunistic and responsive to changing market conditions.
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