Calculate the cost of existing debt, accounting homework help

Business Finance

Rollins Corporation is estimating its WACC.  It’s current and target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon rate, paid semiannually, a current maturity of 20 years, and sell for $1,040.  The firm could sell, at par, $100 preferred stock which pays a $12.00 annual preferred dividend.  Rollins’ common stock beta is 1.2, and the risk-free rate is 10 percent. Rollins is a constant-growth firm which just paid a dividend 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 (worth 15 out of 100 possible points for the quiz)

Part a. Calculate the cost of existing debt.

Part b. Calculate the cost of new debt.

Question 2 (worth 15 out of 100 possible points for the quiz)

Part a. Calculate the cost of existing preferred stock.

Part b. Calculate the cost of new preferred stock.

Question 3 (worth 15 out of 100 possible points for the quiz)

Part a. Calculate the cost of existing common stock.

Part b. Calculate the cost of new common stock.

Question 4 (worth 15 out of 100 possible points for the quiz)

Part a. Calculate the weighted average cost of capital (WACC) for existing capital

Part b. Calculate the weighted average cost of capital (WACC) for new capital