To a tax-paying stockholder, a stock repurchase generally Blank______.

Question

Multiple choice question.

generates the same tax liability as a cash dividend

has significant tax advantages compared to a cash dividend

generates a slightly higher tax liability than a cash dividend

has significant tax disadvantages compared to a cash dividend

Answer 1

The correct answer is: has significant tax advantages compared to a cash dividend.

In many tax jurisdictions, capital gains from selling stock (such as from a stock repurchase) are often taxed at a lower rate than ordinary income, which includes cash dividends. This makes stock repurchases more tax-efficient for stockholders compared to receiving cash dividends.