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Author Question: Amish Electronics Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume ... (Read 77 times)

V@ndy87

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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?
◦ $4,800
◦ $6,000
◦ $7,200
◦ $10,000
◦ $12,000


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Marked as best answer by V@ndy87 on Apr 25, 2021

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V@ndy87

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Reply 2 on: Apr 25, 2021
Great answer, keep it coming :)


pratush dev

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

 

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