One way for a company to increase its book value per share is to ________.
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A. B. C. D.C
This will of course decrease the shares outstanding, but the $ value at a lower rate, thus increasing the book value per share.
To increase its book value per share, a company can employ various strategies. Let's examine each answer choice to determine which one is most likely to achieve this goal:
A. Issue long-term debt: Issuing long-term debt refers to a company raising funds by issuing bonds or taking on long-term loans. While this action can increase the company's overall assets, it also increases its liabilities. As a result, the company's equity (book value) remains unchanged, and therefore, the book value per share is unlikely to increase. Thus, option A is unlikely to be the correct answer.
B. Increase dividend payout ratio: The dividend payout ratio represents the percentage of earnings that a company distributes to its shareholders as dividends. By increasing the dividend payout ratio, the company can distribute a larger portion of its profits to shareholders. However, this action reduces the retained earnings of the company, which is a component of the company's equity. Consequently, increasing the dividend payout ratio is unlikely to increase the book value per share. Therefore, option B is also unlikely to be the correct answer.
C. Buy back shares at market prices below their book value: Share buybacks occur when a company repurchases its own shares from the open market. If the company buys back its shares at prices below their book value, it reduces the total number of outstanding shares. As a result, the company's equity (book value) remains the same, while the number of shares decreases. Consequently, the book value per share increases, making option C a plausible answer.
D. Retire long-term debt: Retiring long-term debt involves the company repaying or extinguishing its outstanding long-term debt obligations. By reducing its liabilities, the company's equity increases, which in turn raises the book value. As a result, the book value per share may increase. Thus, option D is a viable answer.
Considering the explanations above, options C and D are both plausible answers. However, given that option D directly reduces liabilities and increases equity, it is a more direct and effective way to increase book value per share. Therefore, the most likely correct answer is option D: retire long-term debt.