Question

Which one of the following statements is correct?

A) A cash dividend has no effect on the market value per share.

B) A stock repurchase increases the market value per share.

C) Stock repurchases are more tax advantageous than are cash dividends.

D) A stock repurchase increases the book value of shareholders' equity.

Answer is C, need an explanation for B and D, I think stock repurchase will increase the stock price.

Answer 1

you said rightly the correct answer is C

Explanation:

B) You are right that when a company repurchase it shares then the market value of per share will increase because after repurchase the number of shares will be decrease and earning per share would be increase Since this situation also depends upon various factors of company and it's corporate governance Therefore in this question option C is more appropriate answer.

D) When a company repurchase it's shares then it is treated as treasury stock under assets side until it is not canceled and therefore it does not increase the shareholder's equity on the other side if repurchase shares will be cancelld if then that will not increase the shareholder's equity because it will reduce the common stock and also retained earning.

I hope this clear your doubt.

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