Swimtech Pools Inc. (SPI) reported the following in its financial statements for the quarter ended March 31, 2013.
December 31, 2012 March 31, 2013
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 ........
Required:
1. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended March 31, 2013.
2. Assume SPI repurchases 10,000 of its common stock at a price of $2 per share on April 1, 2013. Also 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?