Why Does a Stock Repurchase Improve the After-Tax Position of Stockholders

question 55

Multiple Choice

Why does a stock repurchase improve the after-tax position of stockholders over cash dividends?

• A)The theoretical increase in value is taxed at the lower capital gains rate
• B)Reduced shares outstanding increase earnings per share
• C)Cash dividends are taxed as ordinary income
• D)All of the above

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Definitions:

Output

The total amount of goods and services produced by an economic system.

Most Efficiently

Operating in a way that maximizes productivity or benefits while minimizing waste and costs.

Output

The total amount of goods and services produced by an economy, business, or machine in a given period.

MC Equals MR

A condition in economics where the marginal cost of producing an additional unit is equal to the marginal revenue received from selling that unit, often used to determine the optimal level of production in perfectly competitive markets.