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Answer: To signal that the company’s prospects are positive
**Explanation:** - **Share repurchases** are often viewed as a signal that management believes the company's stock is undervalued and that future prospects are positive. - **Decreasing financial leverage** is not typically a motivation for share repurchases; in fact, repurchases reduce equity and may increase leverage ratios. - Companies may choose repurchases over dividends to provide flexibility in capital allocation and to avoid creating expectations for ongoing dividend payments. Therefore, **signaling positive prospects** is a key motivation for share repurchases.
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Which of the following is most likely a motivation for a company using share repurchases rather than cash dividends to distribute earnings to shareholders?
A
To decrease the company’s financial leverage
B
To signal that the company’s prospects are positive