Use the Information for the Question(s)below

question 92

Essay

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.
-Show mathematically that the stock price of RC won't change following the debt issuance and share repurchase.

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Definitions:

Cognitive Psychology

The branch of psychology that studies mental processes including perception, thinking, memory, and problem-solving.

Evolutionary Psychologists

Scientists who study the psychological adaptations of humans to the changing physical and social environment, often focusing on survival, reproduction, and behaviors that have evolved over time.

Behavioural Processes

The mechanisms underlying observable actions or reactions of living organisms, often studied in psychology and neuroscience.

Adaptive Value

The extent to which a trait or behavior positively affects an organism's survival and reproduction.