SS11 R39 Dividends and Share Repurchases

Question 1

Explain the Dutch auction method of repurchasing shares.

Answer 1

company communicates to shareholders a specific number of shares and a range of acceptable prices

Question 2

After a share repurchase, BVPS is most likely increase if BVPS was _____ before purchase.

Answer 2

greater than the market price per share

Question 3

Calculate EPS after share repurchase.

Answer 3

total earnings: EPS * #stocks
after-tax cost of debt: (yield on new debt)*(1-tax)

EPS after buyback: (total earnings - after-tax cost of funds)/(shares outstanding after buyback)