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Why do companies often repurchase stock instead of paying cash dividends? What is the effect for the stockholder?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 14QTD

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Why would a company repurchase its own stock?
Which of the following is true of a stock dividend? A. It is a liability. B. The decision to issue a stock dividend resides with shareholders. C. It does not affect total equity but transfers amounts between equity components. D. It creates a cash reserve for shareholders.
Why do firms change their dividends policy?
Why would a company choose to not pay dividends on its common stock?
Why might a stock dividend or a stock split be of limited value to an investor? What about a stock repurchase? Does it make sense for a corporation to repurchase its own stock?
A. Why is the goal of financial management to maximize the current share price of the company's stock and not the future share price?
Which dividends do not reduce stockholders' equity? * Cash dividends Stock dividends O Property dividends O Liquidating dividends
If stock dividends and stock splits don't give shareholders significant value/ amount, why do you think companies decide to still make use of them?
What is the purpose of a stock dividend or stock split? How does a stock split impact a company's financial statements? How does a stock split impact a stockholders' individual investment?What is a reverse stock split?
To what extent does the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate claims.
Which of the following is not one of the primary considerations management must make before a cash dividend is declared? O The availability of funds to pay the dividend. O The effect of inflation on the company and alternative uses of the cash to be paid for dividends. O The legal permissability of the dividend. O The tax impact on stockholders of the receipt of the dividends.
1. What are the company motives for declaring dividends or stock repurchase programs? 2. How would you argue for a significant increase in both dividends and repurchases instead of using the available cash to make investments, i.e. M&A? 3. Would the tax treatment of dividend income versus capital gains income affect the managers’ decisions to disburse cash via dividends versus stock repurchases?