Question 1. Companies cost of borrowing is 4.5%. The stock price is $45 and earnings per share is $2.00. The number of shares outstanding is 15

million share. In case company decides to repurchase 4 million shares outstanding at the prevailing market price, will earnings per share increase, decrease or remain the same? (10 pts)

Question 2. The number of shares outstanding is 20 million. Earnings per share $2.00. Price to earnings ratio is 20. Book value per share is $30. If company repurchases 2 million shares, what is the resulting book value per share? (10 pts)

Question 3. The company is planning to repurchase 200,000 shares. Shares outstanding before the buyback is 6.2 million. Earnings per share before the buyback is $8.00. Share price at time of the buyback is $50.00. After-tax cost of borrowing is 8%. What is the earnings per share after the buyback. (10 pts)

Question 4. Define the pros and cons of dutch auction method to a fixed price tender offer. (5 pts)

Question 5. In what way dividends are different from stock splits. (5 pts)