Evanston Industries Believes That at Its Current Stock Price of $40.00

Essay

Evanston Industries believes that at its current stock price of $40.00 the firm is undervalued in the market. Evanston plans to repurchase 1.8 million of its 10 million shares outstanding. The firm's managers expect that they can repurchase the entire 1.8 million shares at the expected equilibrium price after repurchase. The firm's current earnings are $50 million. If management's assumptions hold, what is the expected per-share market price after repurchase? Assume that the firm's P/E ratio is not affected by the recapitalization.