CFA Practice Question

One way for a company to increase its book value per share is to ______
A. buy back shares at market prices below their book value
B. increase dividend payout ratio
C. retire long-term debt
Explanation: This will of course decrease the shares outstanding, but the \$ value at a lower rate, thus increasing the book value per share.

User Comment
andrewsutton Can anyone explain?
bawejate suppose you have 100 shares outstanding at \$10 per share.
if you buy back 10 shares..total shares-90 but the equity remains the same so book value per share increases.
It is now being divided by 90 instead of 100
eddeb bawejate explanation is wrong since it does not include the fact that shares must be bought below their book value.

If you rebuy those shares at the same price, BV per share doesn't change.
vikram59 people should not give explanantions unless they are sure!
Kuki vikram/andrew

assume you have 100 shares at \$10 each
number of shares = 100
equity = 1000
bvps = 10

now assume you bought 10 shares for \$9 each
number of shares = 90
equity = 1000-(10x9)=910
bvps = 910/90 = 10.11

therefore bvps increased BECAUSE you bought back the shares at lower than bookvalue