Final answer:
To reward investors with tax-deferred capital gains rather than paying taxed dividends, issuing bonus shares to existing shareholders is an effective method. This allows investors to potentially benefit from the increase in stock value without immediate tax consequences.
Step-by-step explanation:
In a year when taxes on dividends increased greatly, a method to reward investors with tax-deferred capital gains rather than paying a cash dividend would be A) Issuing bonus shares to existing shareholders. This approach allows investors to benefit from the potential appreciation of the stock's value without immediate tax liability. When the shares are eventually sold, if they have increased in value, investors realize a capital gain. By contrast, option B) providing stock options to employees, would not directly reward investors, and C) implementing a stock buyback program might indirectly affect share price but does not provide a direct tax-deferred benefit to investors in the way that issuing shares does. Offering D) cash dividends with a tax credit still involves a tax hit, albeit reduced, which is not the tax-deferral strategy sought. The essence of rewarding with capital gains is captured by the fact that investors may buy a share of stock in a company such as Wal-Mart for a certain price and sell it later for a higher price, the difference being their capital gain.