Which of the following statements is CORRECT?
A) One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their investment in the company.
B) One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account.
C) Stock repurchases can be used by a firm that wants to increase its debt ratio.
D) Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years,provided investors are aware of these investment opportunities.
E) One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding.

Question

Quizplus · Accepted Answer

Stock repurchases can be used by a firm to adjust its capital structure. When a company buys back its own shares, it reduces the number of shares outstanding, which can increase the debt-to-equity ratio if the repurchase is financed with debt or if it uses excess cash that might otherwise be used to pay down debt.

Which of the Following Statements Is CORRECT