Leakey Valves Inc is all equity financed and generates perpetual annua

Leakey Valves 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 Leakey Valves has a 100% payout rate, 1,000 shares outstanding, and that shareholders require a return of 6%. Assume that the tax rate is 0%.
Leakey Valves is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $10.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 4%. Assume that the tax rate is 0%.
If Leakey Valves goes ahead with the repurchase, then what is the value of the company after the repurchase is complete?
A) $8,000
B) $10,000
C) $12,000
D) $15,000
E) $9,000

ANSWER

B