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:

Civil Rights

The rights of citizens to political and social freedom and equality, often protected by law against discrimination or oppression.

Generalized Powerlessness

A feeling or belief that one has little to no control over the events in their life, often perceived as a widespread or all-encompassing sensation.

Values And Occupation

The relationship between personal beliefs and ethics and one's professional career or choice of job.

Neatness

The quality of being clean, orderly, and well-organized, often reflecting on one's personal habits or the presentation of their work.