Homework Help is Here – Start Your Trial Now!
Business
Finance
1. What is Rollins’ component cost of debt? a. 10.0% b. 9.1% c. 8.6% d. 8.0% e. 7.2% 2. What is Rollins’ cost of preferred stock? a. 10.0% b. 11.0% c. 12.0% d. 12.6% e. 13.2% 3. What is Rollins’ cost of retained earnings using the CAPM approach? a. 13.6% b. 14.1% c. 16.0% d. 16.6% e. 16.9%

1. What is Rollins’ component cost of debt? a. 10.0% b. 9.1% c. 8.6% d. 8.0% e. 7.2% 2. What is Rollins’ cost of preferred stock? a. 10.0% b. 11.0% c. 12.0% d. 12.6% e. 13.2% 3. What is Rollins’ cost of retained earnings using the CAPM approach? a. 13.6% b. 14.1% c. 16.0% d. 16.6% e. 16.9%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
See similar textbooks
icon
Related questions
Question

Rollins Corporation has a target capital structure consisting of 20% debt, 20% preferred stock, and 60% common equity. Assume the firm has insufficient retained earnings to fund the equity portion of its capital budget. It has 20-year, 12% semiannual coupon bonds that sell at their par value of $1,000. The firm could sell, at par, $100 preferred stock that pays a 12% annual dividend, but flotation costs of 5% would be incurred. Rollins’ beta is 1.2, the risk-free rate is 10%, and the market risk premium is 5%. Rollins is a constant growth firm that just paid a dividend of $2.00, sells for $27.00 per share, and has a growth rate of 8%. The firm’s policy is to use a risk premium of 4% when using the bond-yield-plus-risk-premium method to find rs. Flotation costs on new common stock total 10%, and the firm’s marginal tax rate is 40%.

Cost of debt

1. What is Rollins’ component cost of debt? a. 10.0% b. 9.1% c. 8.6% d. 8.0% e. 7.2%

2. What is Rollins’ cost of preferred stock? a. 10.0% b. 11.0% c. 12.0% d. 12.6% e. 13.2%

3. What is Rollins’ cost of retained earnings using the CAPM approach? a. 13.6% b. 14.1% c. 16.0% d. 16.6% e. 16.9%

4. What is the firm’s cost of retained earnings using the DCF approach? a. 13.6% b. 14.1% c. 16.0%

5. What is Rollins’ cost of retained earnings using the bond-yield-plus-risk-premium approach? a. 13.6% b. 14.1% c. 16.0% d. 16.6% e. 16.9%

6. What is Rollins’ WACC, if the firm has insufficient retained earnings to fund the equity portion of its capital budget? a. 13.6% b. 14.1% c. 16.0% d. 16.6% e. 16.9%

PLEASE SHOW SOLUTION and Formula

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 7 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS