TunenuTUGTS.Didenas and Share Repurchases Due Today at 11:59 PM CST Back to Assi

Question

TunenuTUGTS.Didenas and Share Repurchases Due Today at 11:59 PM CST Back to Assignment Attempts: 6. Dividend reinvestment plans Average: /3 Dividend reinvestment plans (DRIPS) allow shareholders to reinvest their dividends in the company by purchasing additional shares instead of receiving cash dividend payments The majority of large companies offer dividend reinvestment plans to their stockholders. These plans allow stockholders to automatically reinvest their dividends in the stock of the firm paying the dividend. Dividend reinvestment plans can be classified as either old stock or new stock plans Galaxy Company has raised $1 million in cash from its dividend reinvestment plan. The firm used these funds to purchase its stock on the open market. Which type of dividend reinvestment plan does this scenario describe? O A new stock dividend reinvestment plan O An old stock dividend reinvestment plan levels of participation in a dividend reinvestment program suggest that stockholders would be better served LOw h reduced its cash dividends High Why do firms use dividend reinvestment plans?

Explanation / Answer

1)An Old stock dividend reinvestment plan as shares are being bought in the secondary market.

2)High level of participation. This would save stockholders some personal income tax.

3)Needs additional equity capital.

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