Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 85

Determining the Effect of a Stock Repurchase on EPS and ROE
Swimtech Pools Inc. (SPI) reported the following in its financial statements for the quarter ended March 31, 2013.

During the quarter ended March 31, 2013, SP1 reported Net Income of $5,000 and declared and paid cash dividends totaling $5,000.
Required:
1. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended March 31. 2013.
2. Assume SPI repurchase. 10,000 of its common stock at a price of $2 per share on April 1,2013. Alto assume that during the quarter ended June 30, 2013, SPI reported Net Income of $5,000, and declared and paid cash dividends totaling $5,000. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended June 30, 2013.
3. Based on your calculations in requirements 1 and 2, what can you conclude about the impact of a stock repurchase on EPS and ROE