Tarbox Tobacco Inc is all equity financed and generates perpetual annu

Tarbox Tobacco Inc is all equity financed and generates perpetual annual EBIT of $300. 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 Tarbox has a 100% payout rate.

Tarbox has 1,500 shares outstanding. The stock holders of Tarbox require a return of 5%. Assume that the tax rate is 0%. What is the price per share for Tarbox stock?
A) $6.67
B) $0.20
C) $4.00
D) $10.00
E) $7.49

ANSWER

C