Which of the following statements is correct?
A)One disadvantage of dividend reinvestment plans is that they increase transaction costs for investors who want to increase their ownership in the company.
B)One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account.
C)Stock repurchases can be used by a firm that wants to increase its debt ratio.
D)One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding.

Question

Quizplus · Accepted Answer

Stock repurchases can be used by a firm to adjust its capital structure, including increasing its debt ratio. When a company buys back its own shares, it can finance this action through debt, effectively increasing the proportion of debt relative to equity in its capital structure.

Which of the Following Statements Is Correct