Based on calculation above if the company repurchases its stocks by $ 8 per share. The stock price in the market will be $ 8.3733 per share. This action is not too attractive to the investors because the stock price after repurchases is almost the same as the stock price currently trading in market ($ 8 per share). Therefore the investors do not get much of benefits from this option.
• The pro of stock repurchase:
By repurchasing of stocks, the amount of shares outstanding will decrease; it makes the EPS increase and finally the DPS increase as well. It makes the market price of stock will also increase. Based on the theory the capital gain from repurchases of stock must be equal with the dividends should be paid.
• The cons of stock repurchase:
May be viewed as a negative signal (firm has poor investment opportunities). From the perspective of an investor, a cash dividend is dependable, usually quarterly. A stock repurchase, however, is not. For some investors, the dependability of the dividend may be more important. As such, investors may invest more heavily in a stock with a dependable dividend than in a stock with less dependable repurchases.