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Basic Question 13 of 13
The most important difference between stock repurchases and cash dividend is that they
B. have different effects on corporate cash flow.
C. have different effects on current stock price.
D. may have different tax consequences.
E. require different accounting practices.
A. benefit different groups.
B. have different effects on corporate cash flow.
C. have different effects on current stock price.
D. may have different tax consequences.
E. require different accounting practices.
User Contributed Comments 8
| User | Comment |
|---|---|
| sarath | stock repurchases reduce the tax liability as it increases capital gains..which are not taxed immediately... |
| danlan2 | It is talking about the most important difference, so the answer is D. |
| proquo | 'd anyone consider C? |
| mysking | I DON'T UNDERSTAND!!! Isn't in the text written: "A share repurchase should be equivalent to the payment of cash dividends of equal amount in their effect on shareholders' wealth, all other things equal (which means the taxation and information content of cash dividends and share repurchases do not differ)." It is saying there isn't any difference in the treatment of tax between cash dividends and share repurchases??!! HELPP!! |
| AusPhD | The text in brackets is defining what they mean by 'all other things equal'. In reality, all other things are not necessarily equal and tax and signalling differences have tangible effects. |
| viruss | E is also true. cash dividends RE decrease leading to total equity decrease while share repurchase leads to a decrease of RE but a constitution of own equity shares reserve in equity right ? |
| StJohnDale | Would a stock repurchase not increase the stock price, where as a dividend would tend to decrease the stock price once it has been paid? I suppose they talk about current stock price? |
| johntan1979 | Keywords: MOST IMPORTANT difference |
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Learning Outcome Statements
compare stable dividend with constant dividend payout ratio, and calculate the dividend under each policy;
describe broad trends in corporate payout policies;
CFA® 2025 Level II Curriculum, Volume 3, Module 16.