Under what circumstances would a firm engage in share repurchases rather than increasing dividends?
A)If the firm has excess free cash flow that management expects will continue indefinitely.
B)If the firm has excess free cash flow that management expects will be only temporary.
C)If shareholders are in a lower tax bracket for dividends than for realized capital gains.

Question

Quizplus · Accepted Answer

Share repurchases are often used when a company has excess cash that it believes is not going to be a permanent situation. By buying back shares, the company can return value to shareholders in a flexible manner, without committing to the ongoing obligation of higher dividends that might be unsustainable in the long term.

Under What Circumstances Would a Firm Engage in Share Repurchases