Chartered Financial Analyst Level 2 test

20:00

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CFA Level 2

Intermediate

1/20

ABC Company has a current share price of $50, and management is considering a share repurchase program. The company has excess cash of $100 million and plans to use it to repurchase shares at the current market price. ABC Company currently has 10 million shares outstanding, and its earnings per share (EPS) for the most recent fiscal year was $4. Assuming the share repurchase program is completed and no other changes occur, what will be the company's new EPS?

The new EPS will be $4.20. The share repurchase will decrease the number of outstanding shares, leading to an increase in EPS. However, the repurchase will also result in a decrease in the company's total equity. Considering these factors, the new EPS will be slightly higher at $4.20.

The new EPS will be $4.44. With the $100 million share repurchase at $50 per share, the company will buy back 2 million shares, reducing the total outstanding shares to 8 million. Assuming net income remains constant, the new EPS will be the net income divided by the reduced number of shares outstanding: $4 * (10 million / 8 million) = $4.44.

The new EPS will be $5.00. The share repurchase will reduce the number of outstanding shares, but it will also reduce the company's cash balance. Assuming the net income remains constant, the EPS will increase to $5.00 due to the lower number of shares outstanding and the reduction in total assets.