Question
A firm is considering buying back $1 billion of stock or increasing its regular dividend by the same amount. Which of the following statements is
A firm is considering buying back $1 billion of stock or increasing its regular dividend by the same amount. Which of the following statements is true? (assume that the average investor's individual tax rate and capitol tax rates are the same)
a.) Investors would prefer the buyback for tax purposes
b.) Investors would prefer the dividend because the increase would provide a stronger signal of the firms future cash flows than the buyback
c.) Investors would be indifferent between the two choices
d.) Investors would prefer the buyback because it would provide a stronger signal of the firms future cash flows than the dividend
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