The purchase of treasury stock (commonly called stock buybacks) is being done with increasing frequency in lieu of dividend payments.

Required:

a. Explain why stock buybacks are similar to dividends from the company's viewpoint.

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b. Explain why managers might prefer the purchase of treasury shares to the payment of dividends.

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c. Explain why investors might prefer that firms use excess cash to purchase treasury shares rather than pay dividends.

Answer rating: 100% (QA)

a Buyback of shares means to purchase the existing shares from the open ... View the full answer