- CFA Exams
- CFA Level I Exam
- Topic 4. Corporate Issuers
- Learning Module 16. Analysis of Dividends and Share Repurchases
- Subject 5. Payout policies
CFA Practice Question
Why do companies use share repurchase programs?
II. To optimize the company's capital structure.
III. To return capital to shareholders in a more tax efficient manner than cash dividend payouts.
IV. To offset the dilutive impact of other share issuance programs such as stock option programs.
V. To redeploy excess cash flow.
I. To increase share price over the long term by increasing a continuing shareholder's portion of the future cash flows.
II. To optimize the company's capital structure.
III. To return capital to shareholders in a more tax efficient manner than cash dividend payouts.
IV. To offset the dilutive impact of other share issuance programs such as stock option programs.
V. To redeploy excess cash flow.
Correct Answer: I, II, III, IV and V
User Contributed Comments 3
| User | Comment |
|---|---|
| mysking | Anyone out there mind explaining? |
| swisha | I. since treasury stock don't pay dividends now there is more capital to be distributed to the outstanding shareholders. II. repurchase programs may help to manage capital structure (sell bonds so they can buy back some shares) III. In some countries capital gains taxes are lower than cash dividend taxes (when you recognize that your stock appreciated in your taxes, you would get taxed less compared to your dividend income). IV. When stock options are exercised, repurchases might be necessary to manage the capital structure. V. when companies have excess cash just sitting there it serves the stockholders better if shares are repurchased (increases stock price). |
| rumshine | III. assumes it's more tax efficient in every country. Is that true? |