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A _____ is an alternative method to cash dividends which is used to pay out a firm’s earnings to shareholders

Finance Jan 19, 2021

A _____ is an alternative method to cash dividends which is used to pay out a firm’s earnings to shareholders.

Select one:

a. Stock split

b. Tender offer

c. Initial Public Offering (IPO)

d. Share repurchase

Expert Solution

Answer - d.Share repurchase

Reason - A share repurchase is an alternative method to cash dividends which is used to pay out a firm’s earnings to shareholders. Share repurchasing is the process where the company buyback its own shares which were earlier issued to the general public. Share repurchase reduces the number of shares outstanding and the market capitalization remains the same which means that the price of the share or EPS will increase. The repurchase results in more profits and cash dividends on the shares. Therefore, it a good alternative to cash dividends.

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