Use the Information for the Question(s)below

question 85

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.
-Prior to any borrowing and share repurchase,RC's EPS is closest to:

• A)$0.60.
• B)$1.00.
• C)$1.20.
• D)$0.50.

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Definitions:

Gymnosperms

A group of seed-producing plants that includes conifers, cycads, Ginkgo, and gnetophytes, characterized by having naked seeds not enclosed in an ovary.

Naked Seeds

Seeds not enclosed in an ovary or fruit, typical of gymnosperms like pine trees.

Conifers

A group of cone-bearing seed plants with vascular tissue, mostly evergreens, that includes pines, spruces, and firs.

Gymnosperms

A group of seed-producing plants that includes conifers, cycads, ginkgos, and gnetophytes, characterized by seeds that are not enclosed in an ovary.