If you ignore taxes and transaction costs, a share repurchase will: I.reduce the total assets of a ﬁrm.
II)increase the earnings per share.
III)reduce the PE ratio more than an equivalent stock dividend.
IV)reduce the total equity of a ﬁrm.

Question

Quizplus · Accepted Answer

I) When a company repurchases its shares, it uses cash (an asset) to buy back shares, reducing total assets. II) Repurchasing shares reduces the number of shares outstanding, which increases earnings per share if earnings remain constant. IV) Share repurchases reduce shareholders' equity because the company is essentially distributing cash to shareholders in exchange for a portion of its outstanding equity.

If You Ignore Taxes and Transaction Costs, a Share Repurchase