A company is more likely to repurchase stock rather than pay out dividends when the firm:
A) wants to distribute excess cash by making a regular commitment to its investors.
B) wants to conserve current cash.
C) wants to avoid a commitment for future distributions.
D) foresees excess cash as a common long-term occurrence.

Question

Quizplus · Accepted Answer

When a company repurchases its stock, it can be seen as a signal that the company expects to have excess cash in the future and does not want to commit to regular dividend payments. This can also increase the value of remaining shares, benefitting shareholders who do not sell their shares in the repurchase. On the other hand, paying out dividends signals a commitment to regular distributions, which may not be desirable for a company that wants to avoid future commitments. Therefore, the best choice is C.

A Company Is More Likely to Repurchase Stock Rather Than