Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 52

Ethical Decision Making: A Real-Life Example
Activision became a public company with an initial public offering of stock on June 9, 1983, at $12 per share. In June 2002, Activision issued 7.5 million additional shares to the public at approximately $33 per share in a seasoned new issue. In October 2002, when its stock was trading at about $22 per share, Activision executives announced that the company would spend up to $150 million to reacquire stock from investors. On January 8, 2003, The Wall Street Journal reported that several analysts were criticizing Activision's executives because the company had issued the shares to the public at a high price ($33) and then were offering to reacquire them at the going stock market price, which was considerably lower than the issue price in 2002.
Required:
1. Do you think it was inappropriate for Activision to offer to reacquire the stock at a lower stock price in October 2002
2. Would your answer to question 1 be different if Activision had not issued additional stock in June 2002
3. The above Wall Street Journal article also reported that, in December 2002, Activision executives had purchased, for their own personal investment portfolios, 530,000 shares of stock in the company at the then-current price of $13.32 per share. If you were an investor, how would you feel about executives buying stock in their own company
4. Would your answer to question 3 be different if you also learned that the executives had disposed of nearly 2.5 million shares of Activision stock earlier in the year, when the price was at least $26.08 per share