Use the Information for the Question(s) Below

question 17

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

• A) 12%
• B) 9%
• C) 11%
• D) 10%

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Definitions:

Stress Hormone

Biochemical substances, such as cortisol, released into the body in response to stress, affecting physiological and psychological functions.

Cortisol Levels

The concentration of cortisol, a steroid hormone, in the blood, which is often used as a marker for stress.

Oxytocin

A hormone and neurotransmitter involved in childbirth, lactation, social bonding, and stress reduction.

Stress-Moderating

Involving or aimed at reducing the level of stress, especially through specific techniques or interventions.