Which one of the following statements related to stock repurchases is correct?
A) U.S. industrial firms have increased their stock repurchases every year for each of the past 20 years.
B) The tax law change in May 2003 led to a huge increase in stock repurchases and a reduction in dividend payments.
C) A tender offer indicates that a company is willing and able to purchase as many shares as shareholders wish to sell.
D) All stock repurchases must be identified as such to the selling party.
E) Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders.

Question

Quizplus · Accepted Answer

Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders, as compared to dividend payments which are taxed as ordinary income. Choice A is incorrect as it makes a sweeping statement without any data to support it. Choice B is partially correct but misleading, as the tax law change did lead to an increase in stock repurchases but not necessarily a reduction in dividend payments. Choice C is incorrect as a tender offer only specifies a minimum and maximum price for the shares that the company is willing to buy, and not an unlimited willingness to purchase all shares. Choice D is incorrect as stock repurchases need to be reported to the SEC but individual shareholders may not necessarily be informed.

Which One of the Following Statements Related to Stock Repurchases