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Dividend income and capital gains

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Reference no: EM131157274

If a company pays a dividend, the investor is liable for tax on the total value of the divi- dend. If instead the company distributes the cash by stock repurchase, the investor is liable for tax only on any capital gain rather than on the entire amount. Therefore, even if the tax rates on dividend income and capital gains are the same, stock repurchase is always preferable to a dividend payment." Explain with a simple example why this is not the case.

Reference no: EM131157274

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