Which way would you prefer your company share their wealth? Why?

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Expert Solution

There are three major ways in which companies can share their wealth. It can be by dividends, by share repurchase or with the help of increased shareprice. Which way is best depends on the company's situation and what plans the company has in the future. Suppose if there are many good projects upcoming, it wouldn't make sense to distribute dividends because those dividends can be used to increase the share price and provide a higher benefit to the shareholders. Suppose if there is a lot of cash lying with the company and they have no use of it except put it in bank and earn interest on it. Then, it would be prudent to distribute it in the form of dividends and share repurchase. The mode of distribution also depends on the economic and environment. In case, we see that some distress is going to come in the economy and as a result, the firm might need capital, it would make sense to not distribute dividends at all.

jeff jeffy answered 1 year ago

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