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.
You might also like to view...
(n) ________ describes a verb, an adjective, or an adverb
A) noun B) verb C) adjective D) adverb
How much money must you pay into an account at the beginning of each of 30 years in order to have $10,000 at the end of the 30th year? Assume that the account pays 11% per annum, and round to the nearest $1
A) $39 B) $46 C) $50 D) None of the above