Which of the Following Is NOT Correct in Comparing a Share

question 55

Multiple Choice

Which of the following is NOT correct in comparing a share repurchase to a cash dividend in a world with no taxes, transaction costs, or other market imperfections?

• A) The price of the firm's stock will be the same after the share repurchase or the cash dividend.
• B) The firm's EPS will be higher after the repurchase than it will be after the dividend.
• C) The firm's price/earnings ratio will be the same after the share repurchase or the cash dividend.
• D) The firm will have fewer shares of stock outstanding after the repurchase than it will after the dividend.
• E) The total wealth of an individual shareholder will not be affected by the share repurchase or the cash dividend.

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Definitions:

Externality

The uncompensated impact of one person’s actions on the well-being of a bystander

Total Cost

The sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Organic

Pertaining to or derived from living organisms; in agriculture, involving food produced without the use of synthetic pesticides or fertilizers.

Deadweight Loss

The loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved or is not achievable.