6. Rollins Corporation is estimating its WACC.

Its target capital structure is

20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 10 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $900.

The firm could sell at par, $100 preferred stock

which pays a 12 percent annual dividend, but flotation costs of 10 percent would be incurred.

Rollins' beta is 1.2, the risk-free rate is 10 percent, and the

market risk premium is 6 percent. Rollins is a constant-growth firm which just paid a dividend of $2.00, sells for $23.48 per share, and has a growth rate of 8 percent.

The firm's policy is to use a risk premium of 5.75 percentage points

when using the bond-yield-plus-risk-premium method to find

Is.

The firm's

marginal tax rate is 40 percent.

a.

What is Rollins' component cost of debt?

b.

What is Rollins' cost of preferred stock?

C.

What is Rollins' cost of common stock (rs) using the CAPM approach?

d.

What is the firm's cost of common stock (Is) using the DCF approach?

e.

What is Rollins' cost of common stock using the bond-yield-plus-risk-premium approach?

f.

What is Rollins' WACC?