Asked by Sydney Morehouse on Jun 17, 2024
Verified
Which of the following statements is correct?
A) If a firm repurchases some of its stock in the open market, then shareholders who sell their stock for more than they paid for it will be subject to capital gains taxes.
B) An open-market dividend reinvestment plan will be most attractive to companies that need new equity and would otherwise have to issue additional shares of common stock through investment bankers.
C) Stock repurchases tend to reduce financial leverage.
D) If a company declares a 2-for-1 stock split, its stock price should roughly double.
Capital Gains Taxes
Taxes on the profit made from selling an asset for more than its purchase price.
Financial Leverage
The use of borrowed funds or debt to amplify returns from an investment or project.
Stock Split
A corporate action in which a company divides its existing shares into multiple shares to increase liquidity.
- Understand the tax consequences associated with dividends and stock trades.
- Learn the idea and repercussions of stock splits and reverse splits on the market cost.
Verified Answer
SS
Surinder SamraJun 21, 2024
Final Answer :
A
Explanation :
When shareholders sell their stock for more than they paid for it, they will be subject to capital gains taxes regardless of whether the company repurchased the stock or not.
Learning Objectives
- Understand the tax consequences associated with dividends and stock trades.
- Learn the idea and repercussions of stock splits and reverse splits on the market cost.