Use the Information for the Question(s)below

question 30

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 value of a share for RC is closest to:

• A)$14.00.
• B)$13.20.
• C)$12.00.
• D)$10.80.

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Definitions:

Feedforward Control

A proactive control mechanism that focuses on preventing issues before they occur by monitoring inputs and conditions.

Raw Materials

Basic substances or components used in the manufacturing process to produce goods or finished products.

Production Department

The division within a company responsible for producing goods or services, focusing on efficient operation to meet business objectives.

Forward-thinking Approach

A proactive way of planning and thinking that anticipates future needs, trends, and changes, rather than reacting to events as they happen.