Which statement about a "share buy-backs" is correct?
A)The EPS of the company will decrease after a share buy-back.
B)Share buy-back decreases the information asymmetry for investors.
C)It is an administratively cumbersome way to award stock compensation.
D)Accounting is the same whether repurchased shares are cancelled or not.

Question

Quizplus · Accepted Answer

Share buy-backs can decrease the information asymmetry for investors by increasing the value of remaining shares and signaling management confidence in the company's future prospects. Option A is incorrect because EPS can increase or remain unchanged depending on the ratio of repurchased shares to outstanding shares. Option C is incorrect as stock compensation is usually awarded through stock options or grants, not buy-backs. Option D is false as accounting treatment differs depending on whether repurchased shares are cancelled or held as treasury stock.

Which Statement About a "Share Buy-Backs" Is Correct