Rollins

Corporation is estimating its WACC. It?s

current and target capital structure is 20 percent debt, 20 percent preferred stock,

and 60 percent common equity. Its bonds have a 12 percent coupon rate, paid

semiannually, a current maturity of 20 years, and sell for $1,040. The firm could sell, at par, $100 preferred

stock which pays a $12.00 annual preferred dividend. Rollins’ common stock beta is 1.2, and the

risk-free rate is 10 percent. Rollins is a constant-growth firm which just paid

a dividend of $2.00. Its stock sells for

$27.00 per share, and has a growth rate of 3 percent. The floatation cost is 5% for debt, 10% for preferred

stock, and 25% for common stock. The

firm’s marginal tax rate is 40 percent.

**Question 1 (worth 15 out of 100 possible points
for the quiz)**

Part a. Calculate the

cost of** existing** debt.

Part b. Calculate the

cost of **new** debt.

**Question 2 (worth 15 out of 100 possible points
for the quiz)**

Part a. Calculate the

cost of **existing** preferred stock.

Part b. Calculate the

cost of **new** preferred stock.

**Question 3 (worth 15 out of 100 possible points
for the quiz)**

Part a. Calculate the

cost of **existing** common stock.

Part b. Calculate the

cost of **new** common stock.

**Question 4 (worth 15 out of 100 possible points
for the quiz)**

Part a. Calculate the

weighted average cost of capital (WACC) for **existing** capital

Part b. Calculate the

weighted average cost of capital (WACC) for **new** capital

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