CFA Practice Question
A company in Hong Kong, where there is no taxes on dividends and capital gains, is considering either paying a special dividend or repurchasing its own shares. Shareholders of the company would have
A. greater wealth if the company paid a special cash dividend.
B. greater wealth if the company repurchased its shares.
C. the same wealth under either a cash dividend or share repurchase program.
User Contributed Comments 2
| User | Comment |
|---|---|
| DLUCFA | How is the increase in wealth measured? Is this answer saying that the increase in wealth for the shareholder is the same whether paid a cash dividend or buys back shares. So the increase in EPS as a result of the buyback = the amount of the dividend in all cases? Am I misunderstanding this? |
| joseahernandez | The answer is saying that because there are no capital gains or dividends taxes, from a tax point of view, investors are indifferent to receiving dividends or selling their shares back to the company. |