September 2007 - MCQ Q4

Discussion in 'CB1' started by AKS01, Aug 17, 2019.

  1. AKS01

    AKS01 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?
     
  2. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    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.
     
  3. Divas Thareja

    Divas Thareja Member

    Yes you are correct.
    There's a similar question that supports your statement
    2010 April Q 5
     

Share This Page