NISM Certifications · NISM-Series-XV: Research Analyst · Corporate Actions
A company with 5 crore shares trading at ₹200 announces a buyback of 50 lakh shares at ₹250 via the tender offer route. Net profit is ₹100 crore and stays unchanged post-buyback. What is the change in EPS?
EPS rises from ₹20 to about ₹22.22. Retiring 50 lakh shares cuts the count from 5 crore to 4.5 crore, and with unchanged profit of ₹100 crore, profit divided by 4.5 crore shares gives roughly ₹22.22 per share.
- AEPS rises from ₹20.00 to about ₹22.22Correct
- BEPS rises from ₹20.00 to ₹25.00
- CEPS falls from ₹20.00 to about ₹18.18
- DEPS remains ₹20.00
Explanation
Pre-buyback EPS = 100 crore / 5 crore = ₹20. Post-buyback shares = 5 crore - 0.5 crore = 4.5 crore. EPS = 100 / 4.5 = ₹22.22. The option of ₹25 wrongly assumes the buyback price drives EPS; the ₹18.18 option wrongly adds shares.
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