- CFA Exams
- CFA Level I Exam
- Topic 4. Corporate Issuers
- Learning Module 16. Analysis of Dividends and Share Repurchases
- Subject 5. Payout policies
CFA Practice Question
If, before the buyback, the after-tax cost of borrowing is greater than the earnings yield (E/P) of the shares, the EPS pre-repurchase will be ______ its post-repurchase level.
B. greater than
C. less than
A. the same as
B. greater than
C. less than
Correct Answer: B
User Contributed Comments 8
| User | Comment |
|---|---|
| hkbn | answer contradicts what is given in the text |
| alki | no it doesn't, if cost of borr. is greater then EPS will decrease after repurchase... |
| Rotigga | The answer is right. Read the question carefully, hkbn. |
| REITboy | Does this not assume that the firm is borrowing funds to repurchase shares? Is this applicable if the firm is repurchasing with retained earnings? |
| jayj001 | "PRE-repurchase" |
| dipu617 | Yeah... the tricky part is "pre-repurchase".. :-) |
| davidkhang | Tricky... Tricky... |
| davidt87 | I'm so lost |