A firm that is 100% stock financed with asset of $1 million is considering a stock repurchase of 10% of its shares. The firm has 20,000 shares outstanding and the net income is $120,000. Assume that the book value and market values are identical. The impact of the repurchase on stock price will be ???

answer:

EPS after repurchase is 120,000/(20,000-2,000)=6.67

Assume the repurchase doesn't have impact on earing or P/E ratio

So, Price after repurchse=6.67*P/E=55.6

I don't under the assumption here. Why P/E ration and earing don't change??????

WHY? WHY? WHY? WHY?

公司总资产是减少了，但是假设总收益不变，即总收益没有受总资产的影响，但是每股收益增加了，原来每股收益是120,000/20,000,现在每股收益是120,000/18,000。但是剩余的18,000股票价格也上涨了，所以能保持P/E不变。实际上P/E ration和earing可能会变化的，这里是假设不变，它这样假设你就这样做。不要追究假设的现实性。模型的假设都是很不现实的。就象MM资本理论一样。

噢~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

原来如此~~~~~~~~~~~~~~~~~~~~~~~~

多谢