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:

Blood

A body fluid in humans and other animals that delivers necessary substances such as nutrients and oxygen to cells and transports metabolic waste products away.

Alveoli

Tiny air sacs in the lungs where gas exchange between the air and blood takes place.

Puncture

A small hole made by a sharp object, often referring to a type of wound.

Thoracic Cavity

A part of the body cavity situated between the neck and the diaphragm; it houses the lungs and heart among other structures.