Which of the Following Stock Distributions Would Be Tax-Free to the Shareholder

question 17

Multiple Choice

Which of the following stock distributions would be tax-free to the shareholder?

• A)A 2-for-1 stock split to all holders of common stock.
• B)A stock distribution where the shareholder could choose between cash and stock.
• C)A stock distribution to all holders of preferred stock.
• D)A 2-for-1 stock split to all holders of common stock and a stock distribution to all holders of preferred stock are tax-free to the shareholder.

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Definitions:

Ethical

Pertaining to or dealing with morals or principles of morality; pertaining to right and wrong in conduct.

Shareholder Rights Plan

A strategy used by corporations to deter hostile takeovers by allowing shareholders the right to purchase additional shares at a discount, often referred to as a "poison pill."

Greenmail

A situation where a company buys back its own shares from a potential acquirer at a price higher than the market value to avoid a takeover.

Poison Pill

A poison pill is a defense strategy used by a corporation to deter or prevent hostile takeovers.