Question

Can you use Excel

Rollins Corporation is estimating its WACC. Its only
bond issue has a 6.07 percent annual yield to maturity, par value
of $1,000, mature in 20 years, and has a 5.2% coupon paid
semiannually (2.6%). There is $100 million total par
value of debt outstanding. The firm currently has a $100
par preferred stock that pays a 7.5 percent annual dividend and
currently yields 6 percent. Flotation costs of 5 percent
must be incurred on any new issue of preferred. Current
outstanding preferred stock has a total book value of $8
million. Rollins' beta is 1.25, the risk-free rate is
4.5 percent, and the market risk premium is 6 percent. Rollins is a
constant-growth firm that just paid a dividend of $0.47 last
year. Its common stock sells for $10.00 per share, has a
dividend growth rate of 7 percent, and there are 10 million shares
outstanding. The CFO estimates that internally generated
cash will be sufficient to supply additional equity
funding. The firm's policy is to use a risk premium of 6
percentage points when using the bond-yield-plus-risk-premium
method to find r_{s}. The firm's marginal tax
rate is 40 percent. **Please show all work and
place answers in the space provided.** **If
you get stuck on an answer, assume a number, tell me, and continue
onward to receive credit on other answers**.

**What is Rollins' cost of debt?____________**

**What is Rollins' cost of preferred stock?________**

**What is Rollins' cost of common stock (r**_{s}) using the CAPM approach?_______

**What is the firm's cost of common stock (r**_{s}) using the DCF approach?_______

**What is Rollins' cost of common stock using the bond-yield-plus-risk-premium approach?_______**

**Given your answers to the three previous questions, provide and explain your estimate of the cost of equity?________**

**What are the appropriate weights for debt, preferred stock, and common stock?**

** Debt
weight _______**

** Preferred
stock
weight _______**

** Common
equity
weight _______**

**What is Rollins' WACC?_______**

Answer #1

can you use excel
Rollins Corporation is estimating its WACC. Its only
bond issue has a 6.07 percent annual yield to maturity, par value
of $1,000, mature in 20 years, and has a 5.2% coupon paid
semiannually (2.6%). There is $100 million total par
value of debt outstanding. The firm currently has a $100
par preferred stock that pays a 7.5 percent annual dividend and
currently yields 6 percent. Flotation costs of 5 percent
must be incurred on any new issue of preferred. Current
outstanding...

can you use excel
Rollins Corporation is estimating its WACC. Its only
bond issue has a 6.07 percent annual yield to maturity, par value
of $1,000, mature in 20 years, and has a 5.2% coupon paid
semiannually (2.6%). There is $100 million total par
value of debt outstanding. The firm currently has a $100
par preferred stock that pays a 7.5 percent annual dividend and
currently yields 6 percent. Flotation costs of 5 percent
must be incurred on any new issue of preferred. Current
outstanding...

Can you do in excel
Rollins Corporation is estimating its WACC. Its only
bond issue has a 6.07 percent annual yield to maturity, par value
of $1,000, mature in 20 years, and has a 5.2% coupon paid
semiannually (2.6%). There is $100 million total par
value of debt outstanding. The firm currently has a $100
par preferred stock that pays a 7.5 percent annual dividend and
currently yields 6 percent. Flotation costs of 5 percent
must be incurred on any new issue of preferred. Current...

Can you do in excel
Rollins Corporation is estimating its WACC. Its only
bond issue has a 6.07 percent annual yield to maturity, par value
of $1,000, mature in 20 years, and has a 5.2% coupon paid
semiannually (2.6%). There is $100 million total par
value of debt outstanding. The firm currently has a $100
par preferred stock that pays a 7.5 percent annual dividend and
currently yields 6 percent. Flotation costs of 5 percent
must be incurred on any new issue of preferred. Current...

Rollins Corporation is estimating its WACC. Its only
bond issue has a 6.07 percent annual yield to maturity, par value
of $1,000, mature in 20 years, and has a 5.2% coupon paid
semiannually (2.6%). There is $100 million total par
value of debt outstanding. The firm currently has a $100
par preferred stock that pays a 7.5 percent annual dividend and
currently yields 6 percent. Flotation costs of 5 percent
must be incurred on any new issue of preferred. Current
outstanding preferred stock has a...

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...

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 7.5 percent coupon, paid
semiannually, a current maturity of 20 years, and sell for
$1,105.78. The firm could sell, at par, $100 preferred stock which
pays a 8 percent annual dividend, but flotation costs of 5 percent
would be incurred. Rollins' beta is 1.8, the risk-free rate is 2.45
percent, and the market...

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 rate paid
semiannually, a current maturity of 20 years, and a price of
$1,000. The firm could sell preferred stock dividends at $12 with a
price of $100. Rollins's beta is 1.2, the risk-free rate is 11
percent, and the market risk premium is 5 percent. Rollins is a
constant-growth...

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. Rollinsâ€™ beta is 1.2, the
risk-free rate is...

8.2.2 - Computing WACC
Preston Corp. 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 sells for $1,100.
The firm could sell, at par, $100 preferred stock which pays a 8.7
percent annual dividend, but flotation costs of 5 percent would be
incurred. Preston's beta is 1.2, the risk-free rate is 3...

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