A company has had net income of $23 million in its most recent year and wants to distribute 40% of its net income to shareholders through either dividends or stock repurchases. The firm currently has 2 million shares outstanding, trading at $40.

Part 1

What is EPS after a dividend payment?

Part 2

What is EPS after a stock repurchase?

Part 3

Would shareholders be better off with a stock repurchase compared to a dividend payment (ignore taxes and signalling effects)?

No, since the higher EPS comes at a cost.

No, since EPS won't be higher in the future.

Yes, since it increases EPS.

Yes, since the company bought their shares.