【每日一练】CFA 一级（2015年）

Question：

A firm’s price-to-earnings ratio (P/E) is 12.5. The firm has decided to repurchase shares using external funds that have an after-tax cost of 9%. After the repurchase, the earnings per share (EPS) will most likely: 
A. decrease. 
B. increase. 
C. remain unchanged. 

Answer = A 
Convert the P/E to the earnings yield, which is the earnings-to-price ratio (E/P): 1/12.5 = 8%. Because the after-tax cost of the external funds is higher than the earnings yield (i.e., 9% > 8%), the EPS will decrease after the repurchase.

CFA Level I
“Dividends and Share Repurchases: Basics,” George H. Troughton and Gregory Noronha
Section 4.2.1

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