The company needs to consider the following factors when contemplating a share repurchase program:

I. The amount of free cash flow available to the company.
II. The existing capital structure.
III. The dilutive or accretive impact of the repurchases.

Correct Answer: I, II and III

The amount of free cash flow available to the company and the existing capital structure (debt to equity levels) are usually the first considerations.

The dilutive or accretive impact of the repurchases must be assessed as well. EPS and cash flow per share are increased to the extent the number of shares outstanding is reduced, but the earnings decrease due to lower interest income or higher interest expense. This impact should be assessed in a pro forma analysis by financial management.

The share purchase decision can also affect the company's other strategies, i.e., investment policy, its dividend policy, and capital spending. Therefore, the share repurchase decision must be viewed within the dividend/capital-structure/investment-decision.