Manitoba Flat Land (MFL) Company has a perpetual EBIT of $10,000, an unlevered cost of equity of 5 percent, zero debt, and faces a tax rate of 40 percent.

The firm has 1,000 shares outstanding. MFL issues $5,000 of perpetual debt which pays interest of $500 per year and uses the proceeds of the debt issue to repurchase shares.

The change in the value of the firm is:

a) No change in the value

b) Increase by $2,000

c) Increase by $3,000

d) Increase by $5,000