Chapter 11, Problem 11.17E

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, 2015.

	December 31, 2014	March 31, 2015
Common Stock, $1 par, 50,000 shares outstanding	$ 50,000	$ 50,000
Additional Paid-In Capital	30,000	30,000
Retained Earnings	20,000	20,000
Total Stockholders' Equity	$100,000	$100,000

During the quarter ended March 31, SPI reported Net Income of $5,000 and declared and paid cash dividends totaling $5,000.

Required:

1. 1. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended March 31.
2. 2. Assume SPI repurchases 10,000 of its common stock at a price of $2 per share on April 1, 2015. Also assume that during the quarter ended June 30, 2015, 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, 2015.
3. 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?