Beta Industries has a net income of $2,000,000 and it has $1,000,000 shares of common stock outstanding. The company's stock currently trades @$32 a share. Beta is considering a plan in which it will use available cash to repurchase 20% of its shares in the open market. The repurchase is expected to have no effect on either net income or the company's P/E ratio. What will be its stock price following the stock repurchase?
We first find the existing P/E.
P/E = Market Price /EPS
EPS = Net Income/Number of shares outstanding
EPS = ...
The solution explains how to calculate the stock price after the repurchase