Question

Which of the following statements is FALSE?

a) Because long-term investors can defer the capital gains tax until they sell, there is still a tax advantage for share repurchases over dividends.
b) Unlike with capital structure, taxes are not an important market imperfection that influence a firm's decision to pay dividends or repurchase shares.
c) If dividends are taxed at a higher rate than capital gains, which has been true until the most recent change to the tax code, shareholders will prefer share repurchases to dividends.
d) Shareholders typically must pay taxes on the dividends they receive. They must also pay capital gains taxes when they sell their shares.

Answer 1

B) Unlike with capital structure, taxes are not an important market imperfection that influence a firm's decision to pay dividends or repurchase shares.

Step-by-step explanation:

Taxes are a very important market imperfection that specially affect dividends' policies.

Any tax affects the market negatively, but corporate shareholders are affected twice since the corporation's profits are taxed and the dividend's received by the shareholders are also taxed, as well as any capital gain.