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September 2007 - MCQ Q4

A

AKS01

Very Active Member
Hi,

The question asks "Which of the following is an economically sound reason for a company to enter into a share repurchase?"
A. Earnings per share tends to be inflated
B. Share repurchases can be efficient from a tax point of view
C. Share repurchases are a powerful sign of confidence to the stock market
D. A repurchase is simpler than increasing the dividend

The Mark scheme says that correct answer is B...
Wouldn't this be beneficial from a tax point of view for the shareholders rather than the company?
 
Yes I'd agree with you that the tax advantage is from the shareholders point of view. Presumably the logic is then along the lines that it's reasonable for the company to do this in order to improve after-tax returns to their shareholders.
 
Yes you are correct.
There's a similar question that supports your statement
2010 April Q 5
 
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