In what manner are share repurchases and dividend payments related to each other? Why would a firm choose to engage in a share repurchase?
What will be an ideal response?
A share repurchase occurs when a firm buys back some of its own common shares. Share repurchases occur most commonly as open market repurchases. Dividends are most commonly paid out on a quarterly basis.. Both methods are techniques to return funds to shareholders to from the earnings of the firm belong. A share repurchase and a dividend increase each send a signal to the market place that the shares may be selling at a bargain price.
In the current tax environment, the capital gains from a share repurchase are taxed at a lower rate than dividend income.Thus, firms may choose to maximize shareholder's wealth my reducing shareholder tax liabilities through a repurchase rather than an increase in dividends.
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a. True b. False
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a. Introduction b. Brainstorming c. Gallery of ideas d. Action planning
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a. Registered Trademark Secret b. Uniform Trade Secret c. Inevitable Disclosure d. Constructive Abandonment