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:

Domestic Producers

Manufacturers or suppliers that produce goods or services within a country's borders, contributing to the domestic economy.

Foreign Competitors

Companies based in another country that compete in the same market as domestic firms, often influencing pricing, innovation, and market share.

NAFTA

The North American Free Trade Agreement, a treaty entered into by the United States, Canada, and Mexico; it aimed at eliminating trade barriers between the three countries.

Multilateral Approach

A strategy involving multiple countries working together on a given issue or project, often used in international relations, trade agreements, and environmental policies.