1) undervalued or overvalued

3) saves or increases

7. Dividends versus stock repurchases Ignoring possible tax effects and signalling costs, the total value of a firm's equity remains the same irrespective of how the firm distributes its residual earnings-dividends or stock repurchases. Each distribution method has certain advantages and disadvantages. Based on your understanding of dividends and stock repurchases, select the best terms to go with the statements. Management is likely to repurchase stock if it believes that the stock is undervalued ; this sends positive signals to investors. True or False: Based on the company's earnings in a particular year, repurchases can be made on an ad hoc basis without sending any negative signals to investors. True False Repurchase transactions allow a firm to buy back stock that may be needed to fulfill obligations when employees exercise their stock options. This saves the costs associated with issuing new shares. True or False: Repurchases are more dependable than dividends because the investor wealth does not decrease after a repurchase, whereas the stock price decreases when dividends are distributed. True False