Which of the following statements is correct?
A)If a company has a 2-for-1 stock split, its stock price should roughly double.
B)Capital gains earned in a share repurchase are taxed less favourably than dividends; this explains why companies typically pay dividends and avoid share repurchases.
C)Very often, a company's stock price will rise when it announces that it plans to commence a share repurchase program. Such an announcement could lead to a stock price decline, but this does not normally happen.
D)The clientele effect is the best explanation for why companies tend to vary their dividend payments from quarter to quarter.

Question

Quizplus · Accepted Answer

C) This statement is correct because a share repurchase announcement often signals to the market that the company's management believes its stock is undervalued, which can lead to an increase in stock price. The other options contain inaccuracies regarding stock splits, taxation of capital gains vs. dividends, and dividend payment patterns.

Which of the Following Statements Is Correct