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Chp16_ReviewAnswers - Chapter 16 Payout Policy Answers to...

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Chapter 16 Payout Policy Answers to Chapter 16 Review Questions 1. A firm can distribute cash to its shareholders through dividends and share repurchases. 2. Firms can repurchase shares through different mechanisms. An open market share repurchase results in the firm buying shares in the open market like any other investor. A tender offer repurchase involves the firm offering to buy a certain number of shares at a price set by the firm. A Dutch auction share repurchase enables shareholders to bid how many shares they are willing to sell at a particular price, while a targeted repurchase is the negotiated repurchase of shares from a selected group or groups of existing shareholders. 3. In perfect markets, it does not matter how the firm distributes cash because investors can costlessly replicate any method of payout on their own. 4. Tax codes usually lead to tax advantages for share repurchases over dividend payouts. 5.
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