Question:
"Many companies use stock repurchases to increase earnings per share. For example, suppose that a company is in the following position:
Net profit $10 million
Number of shares before repurchase 1 million
Earnings per share $10
Price-earnings ratio 20
Share price $200
The company now repurchases 200,000 shares at $200 a share. The number of shares declines to 800,000 shares and earnings per share increase to $12.50. Assuming the price-earnings ratio stays at 20, the share price must rise to $250" Discuss.