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Business, 19.12.2019 23:31 chris018107

Rollins corporation’s target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. its bonds have a 12 percent coupon, paid semi annually, a current maturity of 20 years, and sell for $1,200 in the market now. the price of firm’s newly issued preferred stock is $100 and the flotation cost is 5 percent. the company pays an annual dividend of $12 to its preferred stockholders. rollins' beta is 1.2, the risk‑free rate is 10 percent, and the market risk premium (which is the difference between market return and risk free rate) 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 debt -cost-plus-risk-premium method to find ks. the firm's net income is expected to be $1 million, and its dividend payout ratio is 40 percent. flotation costs on new common stock total 10 percent, and the firm's marginal tax rate is 40 percent.

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