Rollins Corporation Is Estimating Its WACC

question 14

Multiple Choice

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' cost of preferred stock?

• A) 10.0%
• B) 11.0%
• C) 12.0%
• D) 12.6%
• E) 13.2%

Explain the immune response process to an antigen.

Describe the process of prescribing and dispensing drugs.

Recognize the importance of DEA numbers in the prescription of controlled substances.

Understand how prescriptions can be transmitted electronically.

---

Definitions:

Constitutional Factors

Physical and genetic characteristics of an individual that influence his or her biological functioning.

Acquisition

The act of gaining possession or knowledge of something.

Unobservable Mental States

Internal psychological conditions, such as thoughts, beliefs, and desires, that cannot be directly observed by others.