MENU
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?
Suggested Answer: B
Get Premium CIMAPRA19-F03-1 Questions
as Interactive Web-Based Practice Test or PDF
Real Exam Format
Detailed Explanations
Instant Access
Get Your Practice Test
24 comments · newest first
SH
Sherita
1 day ago
EPS decrease by 25% is reasonable with share buyback.
FR
France
6 days ago
Agree, C seems accurate. Cash balance is only 20% decrease.
LA
Larue
12 days ago
I lean towards option C. EPS will drop due to fewer earnings per share.
JO
Johana
17 days ago
But earnings stay the same, so EPS might not increase.
LI
Ligia
22 days ago
I feel option B makes sense. EPS could rise with fewer shares.
ME
Melissa
27 days ago
Right! The cash balance decreases by 20%, not 75%.
LA
Lashawn
1 month ago
I think option A is misleading. Cash won't drop that much.
DI
Diane
1 month ago
Yes, but they must consider cash flow too.
XO
Xochitl
1 month ago
True! Less shares means higher EPS, which is good for investors.
AL
Alex
2 months ago
I feel the directors need to focus on EPS improvement.
LE
Leonora
2 months ago
So, option D sounds correct. Cash down 20%, EPS up 25%.
BA
Barbra
2 months ago
Exactly! EPS should actually increase if they reduce shares.
TI
Tina
2 months ago
Right! They’re buying back 20% of shares, so it’s not 75%.
PH
Phuong
2 months ago
Yeah, I agree. The cash balance will only decrease by 20%.
DI
Diane
2 months ago
I think option A is misleading. The cash balance won't drop that much.
SH
Shelia
3 months ago
Totally agree, buybacks can boost EPS if done right!
KE
Kerry
3 months ago
20% of 10 million shares is 2 million shares at $0.75 each.
NA
Nada
3 months ago
Wait, how can EPS increase if they're spending so much cash?
VA
Vannessa
3 months ago
I think EPS will actually go up, less shares means higher earnings per share!
AU
Audria
3 months ago
The cash balance will drop to $1.25 million after the buyback.
MA
Makeda
3 months ago
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.
MA
Malcom
4 months 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.
CR
Cristen
4 months 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%.
RY
Ryan
4 months 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.