Use the Information for the Question(s) Below

question 54

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.
-Which of the following statements is false?

• A) Since the publication of their original paper, Modigliani and Miller's ideas have had only limited influence on finance research and practice.
• B) Proposition I was one of the first arguments to show that the Law of One Price could have strong implications for security prices and firm values in a competitive market; it marks the beginning of the modern theory of corporate finance.
• C) The conservation of value principle extends far beyond questions of debt versus equity or even capital structure.
• D) The conservation of value principle for financial markets states that with perfect capital markets, financial transactions neither add nor destroy value, but instead represent a repackaging of risk (and therefore return).

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Definitions:

Local Environment

The immediate physical surroundings, conditions, and influences affecting the ecosystems or community at a particular location.

Community Psychology

A branch of psychology focused on understanding relationships between individuals and their communities, aiming to enhance quality of life through collaborative research and action.

Preventive

Actions or strategies taken in advance to stop something undesirable from happening, often related to health and safety.

Behavioral

Relates to the actions or reactions of an individual or group in response to external or internal stimuli.