Rollins Corporation Rollins Corporation Is Constructing Its MCC Schedule. Its Target Capital

question 9

Multiple Choice

Rollins Corporation
Rollins Corporation is constructing its MCC schedule. 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 that 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 that 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 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.
-Refer to Rollins Corporation.What is Rollins' lowest WACC?

• A) 13.6%
• B) 14.1%
• C) 16.0%
• D) 16.6%
• E) 16.9%

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Definitions:

Planetary Rings

The rings of ice, rock, and dust that orbit some planets outside their atmospheres, the most famous of which are the rings of Saturn.

Outer Planets

The planets in the Solar System located beyond the asteroid belt, typically referring to Jupiter, Saturn, Uranus, and Neptune.

Hydrologic Cycle

The cycle representing the movement of water between the oceans, atmosphere, land, rivers and other surface water, groundwater, and organisms.

Water Processes

Encompasses the various physical phenomena involving water, including its cycle through the environment (evaporation, condensation, precipitation) and its role in shaping the Earth's surface (erosion, deposition).