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

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Quizplus · Accepted Answer

Ms.Lopez would prefer that the company repurchase 100 shares at $50 per share because with a repurchase, she would not owe any taxes, whereas with a $5.00 per share dividend, she would owe taxes at a 25% tax rate. The cost of the repurchase would also be lower than the cost of the dividend, as Ms.Lopez would only need to sell 100 shares rather than all 1000 shares, and would not incur any transaction costs.

Five Years Ago, Ms