Dear Sir, I have a question regarding "Practice Questions - Chapter 19, Question 5"
The answer is a share repurchase will increase both earnings per share and gearing.
Repurchasing shares would increase equity and hence decrease gearing, right? and how will it increase EPS?
My answer was M&M (without Tax) , finance decision is more important than Div decision.
Thank u for clarifying
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FMPractice Questions - Chapter 19, Question 5
10y ago#1A share repurchase will reduce the number of shares - not increase it. (It is buying back shares from the shareholders and cancelling them).
With fewer shares in issue, the EPS will be higher; also the equity will be lower and so the gearing will be higher.
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