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

question 105

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' retained earnings break point?

• A) $600,000
• B) $800,000
• C) $1,000,000
• D) $1,200,000
• E) $1,400,000

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Definitions:

Applied Behavior Analysis

A systematic approach to understanding behavior and applying interventions based on principles of behaviorism, often used in educational and therapeutic settings to improve or modify behaviors.

Behavior Modification

A treatment approach, based on the principles of operant conditioning, that replaces undesirable behaviors with more desirable ones through positive or negative reinforcement.

Behaviorism

A scientific approach to understanding human and animal behavior, focusing on observable and measurable behaviors rather than mental processes.

Reinforcement

In behavior psychology, a stimulus which increases the likelihood of a preceding behavior to occur again.