Question

Which of the following shareholders of Apple would prefer a stock repurchase to a dividend payment?...

  1. Which of the following shareholders of Apple would prefer a stock repurchase to a dividend payment?

    Drexel University endowment fund

    John, a wealthy individual investor

    Goldman Sachs Corporation

Homework Answers

Answer #1

Dividend is a safer alternative for an investor because, the income will be received currently, whereas Stock Repurchase is a risky option, because the value might fall in future.

However, Dividends will be taxed in the year of receipt itself, whereas, stock repurchase will not be taxed until the stock is sold.

Therefore, Endowment Fund, being risk averse, will definitely prefer dividend.

A wealthy Individual will definitely have income lower than an investment, and also, his risk appetite will be lower than an investment bank. Therefore, he will also prefer dividend.

Goldman Sachs, an Investment Bank, will have huge income, will be holding shares in a large number of companies, will be receiving a lot of income from dividends, so in order to avoid tax and as it has a risk appetite, it will prefer Share Repurchase.

Therefore, Goldman Sachs Corporation

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