I would like some help with these please; Firstly, I don’t think i quite understand the effect of Share repurchase on Book Value per share. Your explanation will be highly appreciated. Secondly, in Corporate Governance, what does this mean, "a board member must not have any “material relationship” with… Key issue here is material relationship. I have my thought of what it might be but another view will def help. cheers WebTwister1
webtwister1 Wrote: ------------------------------------------------------- > effect of Share repurchase on Book Value per > share. Your explanation will be highly > appreciated. I don’t have your book in front of me, but I’ll take a stab. BV of assets is almost always less than market value; thus the market price of a share is higher than BV/share. If the firm draws down cash to repurchase shares at market price, this would lead to a reduced BV/share.
I went over this in my class with John Harris last night. Stock repurchase effect on BV: If you repurchase stock at a market price higher than the BV, it decreases the book value of the security. If you repurchase stock at a market price lower than the BV, it increases the BV.
I said “of the security”. That should read “of the company”.