If You Ignore Taxes and Transaction Costs,a Stock Repurchase Will

question 51

Multiple Choice

If you ignore taxes and transaction costs,a stock repurchase will: I. reduce the total assets of a firm.
II) increase the earnings per share.
III) reduce the PE ratio more than an equivalent stock dividend.
IV) reduce the total equity of a firm.

• A) I and III only
• B) II and IV only
• C) I, II, and IV only
• D) I, III, and IV only
• E) I, II, III, and IV

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Definitions:

Final Dividend

The last dividend payment made by a company to its shareholders for a fiscal year, after the company's final annual earnings are known.

Tax-Effect Adjustment

Adjustments made to account for the tax implications of differences between accounting and tax treatments of items, ensuring financial statements reflect future tax liabilities or assets.

Intragroup Services

Services provided by one entity within a corporate group to another entity within the same group.

Statement of Financial Position

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a basis for computing rates of return and evaluating its capital structure.