All other things being equal,when a company repurchases its common stock:
A)EPS decreases and ROE increases.
B)EPS increases and ROE stays the same.
C)EPS increases and ROE decreases.
D)EPS and ROE both increase.

Question

Quizplus · Accepted Answer

EPS = (Net income − Preferred dividends)÷ Average number of common shares outstanding.So,a decrease in the outstanding shares will increase EPS.Return on equity (ROE)= (Net income − Preferred dividends)÷ Average common stockholders' equity.So,a decrease in the outstanding shares will increase ROE.

All Other Things Being Equal,when a Company Repurchases Its Common