Acadia Electronics is all equity financed and generate 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 acadia has a 100% payout rate, 5,000 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. Acadia is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at price of $4/ share. The repurchase shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate of 3%. Assume that the tax rate is 0%. If acadia goes ahead with the repurchase, then what is the value of the company after the repurchase is complete?
- 7,200
- 10,000
- 12,000
- 4,800
- 6,000