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

Question:

Rollins is estimating its WACC. Its current and target is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent rate, paid semiannually, a current of 20 years, and sell for $1,040. The firm could sell, at par, $100 preferred stock which pays a $12.00 annual preferred Rollins' beta is 1.2, and the risk-free rate is 10 percent. Rollins is a constant-growth firm which just paid a of $2.00. Its stock sells for $27.00 per share, and has a growth rate of 3 percent. The floatation cost is 5% for debt, 10% for preferred stock, and 25% for common stock. The firm's marginal tax rate is 40 percent.
Question 1
Part a. Calculate the cost of existing debt.
Part b. Calculate the cost of new debt.
Question 2
Part a. Calculate the cost of existing preferred stock.
Part b. Calculate the cost of new preferred stock.
Question 3
Part a. Calculate the cost of existing common stock.
Part b. Calculate the cost of new common stock.
Question 4
Part a. Calculate the weighted average (WACC) for existing capital
Part b. Calculate the weighted average (WACC) for new capital
Question 5
Given that the company's required return (WACC) is 10%, rank the two following projects:
Use only one best method to rank the projects
Question 6
Foley Systems is considering a new investment whose data are shown below. The equipment would be depreciated using the MCRS system basis over the project's 4-year life, would have a zero , and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV?
The accelerated rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4.
WACC 10.0%
Net initial investment in fixed assets $75,000
Required new working capital $15,000
Sales revenues, each year $75,000
Operating costs (excluding depreciation), each year $25,000
Tax rate 35.0%
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...