Amish Electronics Inc is all equity financed and generates perpetual a

Amish Electronics Inc is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year.

Assume that Amish has a 100% payout rate, 5,000 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%.
Amish is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 3%. Assume that the tax rate is 0%.
If Amish goes ahead with the repurchase, then what is the value of the company after the repurchase is complete?
A) $4,800
B) $6,000
C) $7,200
D) $10,000
E) $12,000

ANSWER

E