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:

Unguaranteed Residual Value

The estimated future value of an asset at the end of its lease term that is not guaranteed by the lessee or a third party.

Lease Obligation

A financial commitment to make future payments under a lease agreement.

Sales-leaseback Transaction

A financial arrangement where one sells an asset and immediately leases it back from the buyer, effectively freeing up cash while retaining the use of the asset.

Seller-lessee

In a sale-leaseback transaction, the original owner who sells an asset and then leases it back from the new owner, retaining possession and use of the asset.