Final answer:
The statement that a stock repurchase has the same effect on a firm's market value balance sheet as a cash dividend is correct, assuming no taxes or imperfections. Both reduce the company's cash reserves and adjust the stock price, without necessarily affecting shareholder wealth. Therefore, the correct option is E.
Step-by-step explanation:
Assuming there are no taxes or imperfections, the correct statement among those provided is that a stock repurchase has the same effect on a firm's market value balance sheet as does a cash dividend. When a company issues a cash dividend, the payout represents a transfer of wealth from the company to the shareholders, decreasing the company's retained earnings and cash holdings.
This should lead to an equal decrease in the market capitalization, as the total value of the company has been distributed by the amount of the dividend. Similarly, when a company buys back its own shares, it spends cash to purchase outstanding equity, reducing the number of shares and the company's cash reserves.
This also translates to a decrease in market capitalization. Both actions lead to an adjustment in the stock's price that reflects the distribution or expenditure of assets. This adjustment, theoretically, should not necessarily affect shareholder wealth since the decrease in market capitalization could be offset by the cash received or by the proportional increase in ownership due to fewer shares outstanding.