Use the Information for the Question(s) Below

question 59

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,the equity cost of capital for RC is closest to:

• A) 20%
• B) 10%
• C) 12%
• D) 9%

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The achievement of set goals or objectives, often marked by favorable outcomes.

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A market with a vast number of consumers and suppliers, often associated with significant sales potential and competitive dynamics.

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The extra return expected by an investor for holding a risky asset over a risk-free asset, serving as compensation for the higher risk.