CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

A share repurchase may ______ EPS.

I. increase
II. decrease
III. have no effect on
A. I only
B. II only
C. I, II and III
Explanation: The effect depends on whether the repurchase is financed internally or externally.

User Contributed Comments 8

User Comment
twintigers don't be confused with this one. although it is obviously after second thought.
poomie83 there are two factors involved here; earnings and # of shares - if either/both moves up or down that will affect EPS
ksnider could someone explain what would happen if it was internally financed vs externally financed??
harpalani @ksnider: If buy back is internally financed, it is likely to reduce no. of outstanding shares, and increase earnings.
If it is externally financed (through debt) then increase in earnings could be offset by interest costs in which case earnings may not increase.
devaughnb Its hard to believe that interest from debt raised for purposes of repurchase, would outweigh shares repurchased given the immediacy of the repurchase.
MathW It seems preposterous to imagine that the firm might take on debt just in order to buy back a few of its shares; I understood that buybacks occurred when the firm had excess funds, as an alternative to a dividend. Assuming the cost of financing is internal, then the correct answer would be A.
rkennan1 @MathW it may seem preposterous however it is actually extremely common, especially in this current environment.
bball123h Perhaps change that "and" to an "or". Otherwise that's one hell of a roller coaster.
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