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%.

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Definitions:

SIV Diversification

SIV Diversification refers to the process through which the Simian Immunodeficiency Virus (SIV) evolves and generates genetic variability among its populations.

Gene Coalesce

A concept in molecular genetics where different alleles at a gene locus in different lineages trace back to a single ancestral allele.

Allele Fixed

The situation in a population where all members carry the same allele of a particular gene, leading to the lack of genetic variation for that gene locus.