Answer:
New P/E ratio = 11 .00 times
Explanation:
<em>Repurchasing the common stock would mean the company buying back certain units of of the common stock which it had earlier issued to its common stock holders. </em>
This it could do to avoid its earning per share (EPS) not been diluted.
Price earning (P/E) ratio is the ratio of the market price of a share to its Earnings per share (EPS).
P/E = Market price / EPS
Total earnings before re-purchase = EPS × number of shares before repurchase
= $1.84× 20,000 = $36,800
The units of shares re-purchased back
= Amount paid/ Market price per share
= $75,000/24 = 3,125 units
Total number of shares after repurchase = 20,000 - 3,125 = 16875 units
New EPS after repurchase= $36,800
/ 23,125 units= 2.18
New P/E ratio = 24/2.18
= 11.00 times
New P/E ratio = 11 .00 times
