If someone can elabrate me teh following question, it is much appreciated.
A firm has a after tax cost of debt as 5%, cost of equity as 9% and earns 1% on its surplus cash. A share repurchase will increase the EPS when the repurchase is funded by:
a. debt if earnings yield is less than 5%
b. debt if price/earnings ratio is greater than 5%
c. surplus cash if repurchase price is greater than the book value per share
correct answer is C
however, I am not following the rationale for both a and c.
