Question

Investors are indifferent to a firm's dividend policy because they can undo undesirable dividend policy decisions using:

a) Capital gains
b) Stock buybacks
c) Dividend reinvestment
d) Share dilution

Answer 1

Investors are indifferent to a firm's dividend policy because they can undo undesirable dividend policy decisions using stock buybacks. Option b

Step-by-step explanation:

Investors are indifferent to a firm's dividend policy because they can undo undesirable dividend policy decisions using stock buybacks. Stock buybacks involve a company repurchasing its own shares from shareholders.

By buying back shares, the company reduces the number of outstanding shares in the market, which can increase the value of the remaining shares. This can offset any negative effects of an undesirable dividend policy decision. Option b