Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Explain the advantages of stock repurchase compared to regular cash dividend.
Expert Solution
Step 1
Cash dividend is the return provided to the equity shareholders against the amount they invested in the company. The entire earnings belongs to the shareholders as the shareholders are the owners of the company. The company pays a part of the earnings as a dividend to the shareholders.
Step 2
A stock repurchase is the purchase of share by the company and it will reduce the number of share outstanding. The share are purchased by the company when the company has excess cash balance.
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