8. Dividends versus stock repurchases

Ignoring possible tax effects and signaling costs, the total value of a firms equity remains the same irrespective of how the firm distributes its residual earningsdividends 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____________ ; this sends positive signals to investors.

Management tries to maintain consistent, regular dividend distributions to encourage any dividend cuts in the future and prevent a negative signaling effect.

True

False

Repurchases are also used to make significant adjustments to a firms _____________ ratio.

True or False: Repurchases allow a firm to buy back as much stock as it wants, at whatever price it wants, without affecting shareholders.

True

False