Use the Information for the Question(s)below

question 79

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,the equity cost of capital for RC is closest to:

• A)11%.
• B)10%.
• C)12%.
• D)9%.

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Definitions:

Adler

Refers to Alfred Adler, an Austrian medical doctor and psychotherapist, known for his contributions to psychology with the theory of individual psychology.

Behaviorists

Psychologists who study and theorize about human and animal behavior through observable actions, often dismissing internal processes.

Fixated

An obsessive interest or attachment to someone or something.

Aggression

Behavior intended to harm or intimidate others.