💼 Pre-MBA Exam Prep

A stock buyback (share repurchase) typically:

A Increases shares outstanding
B Reduces shares outstanding, increasing earnings per share and potentially signaling undervaluation
C Decreases stock price always
D Is illegal in most countries

✓ Correct Answer: Option B

Buyback: company repurchases its own shares → fewer shares outstanding → EPS increases. Signals management believes stock is undervalued. Alternative to dividends for returning cash.

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