A stock is currently trading for $35. The company has a price-earnings multiple of 10. There are 100 million shares outstanding. Your model indicates that the stock is actually worth $25. The company announces that it will use $300 million to repurchase shares.
a. After the repurchase, what is the value of the stock, according to your model?
b. After the repurchase, what is the actual price-earnings multiple of the stock?