Why does a stock repurchase improve the after-tax position of stockholders over cash dividends?
A)The theoretical increase in value is taxed at the lower capital gains rate
B)Reduced shares outstanding increase earnings per share
C)Cash dividends are taxed as ordinary income
D)All of the above

Question

Quizplus · Accepted Answer

The after-tax position of stockholders improves with a stock repurchase versus a cash repurchase because the theoretical increase is taxed at the lower capital gains rate, it reduces shares outstanding (which increases earnings per share), and cash dividends are taxed at ordinary income rates.

Why Does a Stock Repurchase Improve the After-Tax Position of Stockholders