R27: Dividends and Share Repurchases

Could someone help with the concepts below? Thanks!

  1. If the marginal investor’s tax rate on dividends is higher than her marginal tax rate on capital gains, the decrease in stock price with the share goes ex-dividend should be less than the amount of the dividend.

Comment - Is the decrease in stock price when the share goes ex-dividend less than the amount of the dividend because people would rather hang onto the shares given that the marginal tax rate on capital gains is lower? (and thereby the preference is to HOLD the shares) - OR

Is this purely a mathematical explanation?

  1. Share repurchases do NOT result in an increase in leverage if they are financed by internally-generated funds. [False]

Comment – I read that share repuchases results in an increased leverage regardless of whether they are financed by internally generated funds, or by issuing debt. I understand that if it is through debt, then there is an increase in leverage due to higher liability. However, how does this concept follow through in the case of internally-generated funds?

  1. When the market price of a company’s stock is greater than book value per share, the book value per share will decrease after a share repurchase.

Comment - ??

  1. Leverage = Liabilities / (Liabiltiies + Equity). You’re reducing your equity in a share repurchase (Accounting: Debit Share capital, credit cash). Therefore leverage goes higher.