Use the Information for the Question(s)below

question 85

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.
-Prior to any borrowing and share repurchase,RC's EPS is closest to:

• A)$0.60.
• B)$1.00.
• C)$1.20.
• D)$0.50.

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Definitions:

Labor

The use of mental and physical capabilities in the creation of products and services.

Efficient

Describes a system or process that achieves maximum productivity with minimum wasted effort or expense.

Needed Resources

Essential materials, funds, or personnel required for the execution of a project or the operation of an entity.

Payments

Transactions or transfers of money from one party to another, typically in exchange for goods, services, or to fulfill a financial obligation.