Which of the following statements is CORRECT? Capital gains earned in a share re

Question

Which of the following statements is CORRECT? Capital gains earned in a share repurchase are taxed less favorably than dividends; this explains why companies typically pay dividends and avoid share repurchases Very often, a company's stock price will rise when it announces that it plans to commence a share repurchase program. Such an announcement could lead to a stock price decline, but this does not normally happen Stock repurchases increase the number of outstanding shares The clientele effect is the best explanation for why companies tend to vary their dividend payments from quarter to quarter If a company has a 2-for-1 stock split, its stock price should roughly triple

Explanation / Answer

Very often, a company's stock price will rise when it announces that it plans to commence a share repurchase program. Such an announcement could lead to a stock price decline, but this does not normally happen.

Reason

A buyback reduces the number of shares in a company held by the public. ... In the near term, the stock price may rise because shareholders know that a buyback will immediately boost earnings per share.

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