All Other Things Equal, What Is the Effect on Earnings

question 14

Multiple Choice

All other things equal, what is the effect on earnings per share when a corporation acquires shares of its own stock on the open market?

• A) Decrease.
• B) No effect if the shares are held as treasury shares.
• C) Increase only if the shares are considered to be retired.
• D) Increase.

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Definitions:

Mathematical Relationship

The connection between mathematical variables, often represented through equations or formulas, revealing how changes in one variable affect another.

Purchasing Power

The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.

Vertical Analysis

A method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement.

Common Size Analysis

An analytical technique that converts each line of financial statement data to a percentage of a base amount, facilitating the comparison across different companies or periods.