Stock repurchases

Stock repurchases occur when a company buys its outstanding stock which is often referred to as treasury stock and is reported as a negative value on the company's balance sheet. In a share repurchase, firms use excess cash to buy shares back from investors. These shares are to be held in the corporate treasury and resold if the company needs money. There are several approaches to conducting share repurchases. Consider this situation: The firm announces its intention to buy shares of its own stock, like an ordinary investor, and proceeds to do so. What method is described in the preceding situation? Open-market transaction Tender offer Auction Direct negotiation If you were to look at a firm's distribution of cash to investors over time, which method of cash distribution is likely to be used if the firm goes through volatile business cycles? Stock repurchases Dividends In a taxless world with no brokerage costs, repurchases and dividends have the same effect on shareholder wealth. In the real world, however, repurchases provide more preferable tax treatment than dividends to ordinary investors. Does this mean that firms should always use share repurchases so that investors can gain from this tax benefit? Yes No