Five years ago, Mr. Martinez purchased 1000 shares of JPM stock at $50 per share. If Mr. Martinez ' tax rate is 25%, would he prefer that the company pay a $5.00 per share dividend or offer to repurchase 100 shares at $50 per share?

Question

Quizplus · Accepted Answer

Mr. Martinez would prefer that the company repurchase 100 shares at $50 per share because he would owe no taxes on the repurchase. If he receives a $5.00 per share dividend, he would pay a 25% tax on the dividend, resulting in a net gain of only $3.75 per share. By selling his shares back to the company, he would avoid the tax and receive the full $50 per share. Therefore, repurchasing the stock is the best choice.

Five Years Ago, Mr