1.Rollins Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent...

1.Rollins Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Rollins' beta is 1.6 , the risk-free rate is 3 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 $ 29 per share, and has a growth rate of 4 percent. The firm's policy is to use a risk premium of 3 percentage points when using the bond-yield-plus-risk-premium method to find r_s. The firm's marginal tax rate is 33 percent.
What is Rollins cost of equity when using the CAPM approach? Express your answer in percentage (without the % sign) and round it to two decimal places.

2.A company's balance sheets show a total of $ 25 million long-term debt with a coupon rate of 12 percent. The yield to maturity on this debt is 8.72 percent, and the debt has a total current market value of $ 32 million. The balance sheets also show that that the company has 10 million shares of stock; the total of common stock and retained earnings is $30 million. The current stock price is $7.5 per share. The current return required by stockholders, r_s, is 12 percent. The company has a target capital structure of 40 percent debt and 60 percent equity. The tax rate is 40%. What weighted average cost of capital should you use to evaluate potential projects? Express your answer in percentage (without the % sign) and round it to two decimal places.

Solutions

Expert Solution

ANSWER 1 : 11.00

ANSWER 2 : 9.29

jeff jeffy answered 1 month ago

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