Use the Information for the Question(s)below

question 56

Multiple Choice

Use the information for the question(s) below.
Assume that Rose Corporation's (RC) EBIT is not expected to grow in the future and that all earnings are paid out as dividends.RC is currently an all-equity firm.It expects to generate earnings before interest and taxes (EBIT) of $6 million over the next year.Currently RC has 5 million shares outstanding and its stock is trading for a price of $12.00 per share.RC is considering borrowing $12 million at a rate of 6% and using the proceeds to repurchase shares at the current price of $12.00.
-Following the borrowing of $12 million and subsequent share repurchase,the equity cost of capital for RC is closest to:

• A)12%.
• B)9%.
• C)11.0%.
• D)10%.

Differentiate between private and public corporations and their characteristics.

Recognize the process and accounting treatments for issuing stock above or at par value.

Understand the calculation and significance of retained earnings within stockholders' equity.

Journalize transactions involving the issuance of common and preferred stock.

---

Definitions:

Rebuttable Presumption

A legal principle assuming certain facts are true until proven otherwise.

Partnership Funds

Resources or capital pooled together by partners in a partnership for the purpose of carrying out the partnership's business activities.

Faithful Service

The loyalty and diligence an employee is expected to show towards their employer or organization.

Partnership Opportunity

A chance or situation that allows individuals or entities to form a partnership for conducting business or undertaking a specific project.