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CIMAPRA19-F03-1 Exam - Topic 1 Question 128 Discussion

A listed company is planning a share repurchase.The following data applies:* There are 10 million shares in issue* The share repurchase will involve buying back 20% of the shares at a price of $0.75* The company is holding $2 million cash* Earnings for the current year ended are $2 millionThe Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.Advise the directors which of the following statements is correct?
B) The cash balance will decrease by 75% and EPS will increase by 25%.
A) The cash balance will decrease by 75% and EPS will decrease by 25%.
C) The cash balance will decrease by 20% and the EPS will decrease by 25%.
D) The cash balance will decrease by 20% and the EPS will increase by 25%.

CIMAPRA19-F03-1 Exam - Topic 1 Question 128 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 128
Topic #: 1
[All CIMAPRA19-F03-1 Questions]

A listed company is planning a share repurchase.

The following data applies:

* There are 10 million shares in issue

* The share repurchase will involve buying back 20% of the shares at a price of $0.75

* The company is holding $2 million cash

* Earnings for the current year ended are $2 million

The Directors are concerned about the impact that this repurchase programme will have on the company's cash balance and current year earnings per share (EPS) ratio.

Advise the directors which of the following statements is correct?

Show Suggested Answer Hide Answer
Suggested Answer: B

by Daren at Jun 28, 2026, 01:47 PM

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Makeda
I’m a bit confused about the percentages. If they buy back 20% of shares, does that mean the cash balance drops by 20% of the total cash? I need to double-check that.
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Malcom
5 days ago
I practiced a similar question where the EPS increased after a buyback because fewer shares meant higher earnings per share. I wonder if that applies here too.
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Cristen
10 days ago
I think the cash balance will decrease by the total amount spent on the buyback, which is 20% of 10 million shares at $0.75 each. That sounds like $1.5 million, not 75%.
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Ryan
15 days ago
I remember that a share repurchase reduces the number of shares outstanding, which can affect EPS, but I'm not sure how it impacts cash balance directly.
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