A company may choose to repurchase stock rather than pay out dividends when:
A) the company wants to distribute excess cash, by making a regular commitment to its investors.
B) the company wants to give its investors a bumper dividend.
C) the company does not want to make a commitment to distribute more cash.
D) the company does not want to embark on unprofitable ventures.

Question

Quizplus · Accepted Answer

When a company repurchases its stock, it is not committing to regular payments to shareholders, unlike paying dividends. Repurchasing stock also allows the company to avoid the impression that it has excess cash which may attract unwanted attention from competitors or activists. Additionally, buying back stock can boost the value of the remaining shares, as the company's earnings are spread over fewer outstanding shares.

A Company May Choose to Repurchase Stock Rather Than Pay