Share repurchases are often more tax-efficient than declaring dividends because Question 8 options: a) companies can reduce their taxable income by reducing the number of shares outstanding b) only shareholders who sell their stock are taxed on any resulting capital gain c) the ordinary income tax rate on buybacks is often lower than the long-term capital gains tax rate on dividends d) B and C are correct e) None of the options are correct

The correct answer is:b) only shareholders who sell their stock are taxed on any resulting capital…

Answered: Share repurchases are often more…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 3MC

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Similar questions

Which of the following statements regarding dividend reinvestment plans (DRIPs) is true? Group of answer choices DRIPS typically allow shareholders to avoid paying brokerage fees Many DRIPs allow shareholders to purchase shares of the stock at lower-than-market prices all of them Shareholders can avoid taxes that they would have had to pay if they reinvest the dividends through a tax qualified DRIP rather than receiving the cash payment
Stock options: Multiple Choice have value only if the market price of the stock declines. have value only if the market price of the stock rises. are taxed at ordinary rates. do not qualify for favorable tax treatment.
Which of the following is most likely an advantage of an accelerated share repurchase (ASR) program over an open market share repurchase (OMR) program? Question options: a) ASRs allow a company to provide longer periods of stock price support versus an OMR. b) ASRs send a stronger signal to markets when disclosed versus OMRs. c) ASRs are taxed at the capital gains tax rate, which can be lower than the ordinary income tax rate on OMRs. d) ASRs are more flexible than OMRs.
Choose a,b,c,d,e for the following: Question 2- From a tax-paying investor's point of view, a stock repurchase: a. has the same tax effects as a cash dividend. b. is equivalent to a cash dividend. c. is more highly taxed than a cash dividend. d. No option is correct. e. is more desirable than a cash dividend.
4. Which of the below statements is false about the Static Tax Clientele Theory of payout policy? Investors with high capital gains tax relative to marginal income tax prefer cash dividends An individual company cannot increase its value by changing its payout policy Companies with high dividend payout rates attract investors with relatively low tax rates There is a static equilibrium where companies with low dividend payout rates attract investors with relatively high tax rates None of the above
FAMA is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate FAMA pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue? a. The times interest earned ratio will decrease. b. The ROA will decline. c. Taxable income will decrease. d. The tax bill will increase. e. Net income will decrease. Please explain answer.
As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend. Once we consider the role of taxes, however, this is not necessarily true. One model has been proposed that incorporates tax effects into determining the ex-dividend price: (P0 – PX)/D = (1 – TP)/(1 – TG) Here P0 is the price just before the stock goes ex, PX is the ex-dividend share price, D is the amount of the dividend per share, TP is the relevant marginal personal tax rate on dividends, and TG is the effective marginal tax rate on capital gains. a. If TP = TG = 0, how much will the share price fall when the stock goes ex? multiple choice PX P0 D b. If TP = 16 percent and TG = 0, how much will the share price fall? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)…
Which of the following is NOT a consequence of the double tax on dividends? Question 15 options: Corporations have an incentive to retain earnings and structure distributions to avoid dividend treatment. Corporations have an incentive to invest in non-corporate rather than corporate businesses. The cost of capital for corporate investment is increased. Corporations have an incentive to finance operations with debt rather than equity. All of the above are consequences of the double tax on dividends.
When a stock repurchase occurs, which of the following is not correct?a. EPS decreasesb. Shares are repurchased then cancelledc. Investors may regard this as a tax break compared to a dividend paymentd. Costs in servicing small shareholders may be reducede. All of the above are correct
Which of the following is CORRECT? Select one: a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation. b. When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. c. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of common stock as measured by the CAPM. d. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC. e. All of the above are correct. Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must…
Under the trade-off theory, lowering the corporate tax rate will incentivize companies to increase the ratio of debt in their capital structure. Question options: a) True b) False
Why might a company repurchase its own stock? A) It believes that the market undervalues its shares B) To offset dilutive effects of employee stock options granted C) To recognize an economic gain when the treasury shares are later sold for a profit D) To improve earnings per share by reducing the denominator E) All of the above is it just A and B or is it all of the above

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