Use the Information for the Question(s) Below

question 58

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 expected earnings per share for RC is closest to:

• A) $1.32
• B) $1.44
• C) $1.40
• D) $1.20

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Definitions:

Emotional Contagion

The occurrence in which the emotions and behaviors of one individual directly induce comparable emotions and behaviors in others.

Mimic

To mimic is to imitate or copy someone's actions, speech, or mannerisms, often for learning or adaptation purposes.

Nonverbal Behaviors

Communication without words, including body language, facial expressions, gestures, and other physical cues.

Media Richness

Media richness theory posits that the effectiveness of communication varies with the richness of the medium used, rating from face-to-face (richest) to numerical documents (least rich).