What happens when a stock redemption plan is executed?

What happens when a stock redemption plan is executed?

• A. The corporation liquidates its assets
• B. The corporation buys back shares from shareholders
• C. Shareholders acquire new insurance policies
• D. The corporation disbands

Answer: (B)

When a stock redemption plan is executed, the corporation buys back shares from shareholders. This process typically involves the company purchasing its own stock, which reduces the number of outstanding shares in the market. By doing this, the corporation often aims to return value to shareholders, improve financial ratios, or consolidate ownership. Buying back shares can lead to an increase in the earnings per share (EPS) and potentially the stock price, benefiting the remaining shareholders. Furthermore, it allows the corporation to manage its capital structure effectively, making it a strategic financial move rather than a liquidation or disbandment of the company. This contrasts sharply with options such as liquidating assets or disbanding the corporation, which indicate a halt to operations or a dissolution process rather than a strategic financial maneuver focusing on share repurchase.

When a stock redemption plan is executed, the corporation buys back shares from shareholders. This process typically involves the company purchasing its own stock, which reduces the number of outstanding shares in the market. By doing this, the corporation often aims to return value to shareholders, improve financial ratios, or consolidate ownership.

Buying back shares can lead to an increase in the earnings per share (EPS) and potentially the stock price, benefiting the remaining shareholders. Furthermore, it allows the corporation to manage its capital structure effectively, making it a strategic financial move rather than a liquidation or disbandment of the company.

This contrasts sharply with options such as liquidating assets or disbanding the corporation, which indicate a halt to operations or a dissolution process rather than a strategic financial maneuver focusing on share repurchase.