Which statement is true regarding dividend reinvestment plans?
A)They were introduced after the introduction of the imputation system.
B)They do not allow tax credits to be transferred to shareholders.
C)They allow shareholders to purchase additional shares without incurring transaction costs.
D)They allow shareholders to purchase additional shares without a discount.

Question

Quizplus · Accepted Answer

Dividend reinvestment plans (DRIPs) allow shareholders to use their dividend payments to purchase additional shares of the company's stock without incurring transaction costs. This can be an effective way for long-term investors to accumulate shares over time. A DRIP may or may not offer a discount on the purchase price of the shares, but the absence of a discount does not disqualify a plan from being a DRIP. DRIPs may or may not be compatible with the imputation system, depending on the specific rules of the plan and the tax laws of the country in which the company is incorporated. However, they do not generally allow tax credits to be transferred to shareholders, as these credits are typically applied to the company's tax bill rather than being distributed to individual shareholders.

Which Statement Is True Regarding Dividend Reinvestment Plans