Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)?

When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included.

a. true b. false

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