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Business, 16.07.2019 20:20 T0othless3clipes

Rollins corporation is estimating its wacc. its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. the firm could sell, at par, $100 preferred stock which pays a 12 percent annual dividend, but flotation costs of 5 percent would be incurred. rollins' beta is 1.2, the risk-free rate is 10 percent, and the market risk premium is 5 percent. rollins is a constant-growth firm which just paid a dividend of $2.00, sells for $27.00 per share, and has a growth rate of 8 percent. the firm's policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium method to find rs. the firm's marginal tax rate is 40 percent. what is rollins' component cost of debt?

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