What would be the effect on book value per share and earnings per share if a corporation purchased its own shares in the open market at a price greater than the book value per share?
A) Increase both book value per share and earnings per share
B) Decrease both book value per share and earnings per share
C) Decrease book value per share and increase earnings per share
D) No effect on book value but increase earnings per share

Question

Quizplus · Accepted Answer

When a corporation purchases its own shares in the open market at a price greater than the book value per share, it decreases the book value per share because the corporation is paying more for each share than what they are worth according to the company's accounting records. However, it increases the earnings per share because there will be fewer shares outstanding, resulting in a higher earnings per share calculation. Therefore, the best choice is C.

What Would Be the Effect on Book Value Per Share