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:

Operating Activities

Business actions directly related to the production and delivery of goods and services, generating the company’s primary revenue.

Statement of Cash Flows

A financial statement that provides aggregate data regarding all cash inflows and outflows a company receives from its operational, investing, and financing activities.

Government Agencies

Entities established by a government to perform specific functions or provide services in accordance with legislative mandates.

Checks Outstanding

Refers to checks that have been written by a company but have not yet been cashed or cleared by the bank.