How Share Buy-Backs Differ from Dividends: Ace-IT Co

question 54

Multiple Choice

How share buy-backs differ from dividends: Ace-IT Co. has a policy of returning a minimum of 25 per cent of earnings to shareholders every year through dividend issues and on-market share buy-backs. In each quarter this year, the company earned $0.25 per share. In each of the first three quarters, the company paid a regular cash dividend of $0.05 per share. The company has 2 million ordinary shares outstanding. What combination of dividends and share buy-backs could the company's board approve to meet their target payout percentage?

• A) A regular cash dividend of $0.05
• B) A regular cash dividend of $0.05 per share and an on-market share buy-back of $100,000 in shares
• C) A regular cash dividend of $0.05 per share and an on-market share buy-back of $400,000 in shares
• D) A regular cash dividend of $0.05 per share and an on-market share buy-back of $500,000 in shares

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Definitions:

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Administered Vertical Marketing System

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