80.2K

Verified Solution

Link Copied!

Indicate whether each of the following statements related to employee stock ownership plans (ESOPs) increases or decreases value for outside stockholders: Value for Outside Stockholders ESOP Statements In theory, employees who have equity in a firm will be motivated to work harder and smarter. The creation of an ESOP is a form of additional compensation to employees. Assume that the firm would have to provide this additional compensation in a different way if it did not create an ESOP.) Creating an ESOP can be a powerful tool in warding off takeovers. Compu-Lowe Corp. recently created an ESOP. The company issued 200,000 new shares of stock at $50 per share, which it sold to the ESOP. The ESOP borrowed $10 million to purchase the newly issued shares from the company. The financial institution was willing to lend the money to the ESOP, because Compu-Lowe Corp. signed a guarantee for the loan. The firm used the money from the ESOP to repurchase its shares on the open market at $50 per share. Which of the following statements describes the net effect of these transactions on Compu-Lowe Corp.'s balance sheet? O The firm's total liabilities will increase by $10 million. O The firm's total shareholders' equity will increase by $10 million. O The amount of the firm's total liabilities and total shareholders' equity will remain the same. Indicate whether each of the following statements related to employee stock ownership plans (ESOPs) increases or decreases value for outside stockholders: Value for Outside Stockholders ESOP Statements In theory, employees who have equity in a firm will be motivated to work harder and smarter. The creation of an ESOP is a form of additional compensation to employees. Assume that the firm would have to provide this additional compensation in a different way if it did not create an ESOP.) Creating an ESOP can be a powerful tool in warding off takeovers. Compu-Lowe Corp. recently created an ESOP. The company issued 200,000 new shares of stock at $50 per share, which it sold to the ESOP. The ESOP borrowed $10 million to purchase the newly issued shares from the company. The financial institution was willing to lend the money to the ESOP, because Compu-Lowe Corp. signed a guarantee for the loan. The firm used the money from the ESOP to repurchase its shares on the open market at $50 per share. Which of the following statements describes the net effect of these transactions on Compu-Lowe Corp.'s balance sheet? O The firm's total liabilities will increase by $10 million. O The firm's total shareholders' equity will increase by $10 million. O The amount of the firm's total liabilities and total shareholders' equity will remain the same

Answer & Explanation Solved by verified expert

See Answer