Which of the following would cause a firm’s EPS to increase? a A firm choosing to...

Which of the following would cause a firm’s EPS to increase?

a	A firm choosing to use lots of unskilled labour instead of buying a piece of factory machinery.

b	A firm buying back a portion of its outstanding common shares.

c	A firm increasing its preferred share dividends.

d	A portion of a firm’s convertible bondholders converting their bonds into common shares.

Expert Solution

answer = A firm buying back a portion of its outstanding common shares.

Reasons

a) A firm choosing to use lots of unskilled labour instead of buying a piece of factory machinery.

When using unskilled labout it will increase the production cost which leads to decrease of EPS.

b)A firm buying back a portion of its outstanding common shares.

When buying back the no of shares get reduced and since the dinominator of EPS calculation is lower, so EPS will increase

c)A firm increasing its preferred share dividends

Since the preference share divident is increased, it will reduce the EPS because the equity shareholders are paid after the preference share holders

d)A portion of a firm’s convertible bondholders converting their bonds into common shares.

It will reduce the EPS because the convertion will increase the no of equity shares which is the dinominator of EPS calculation.

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