As a newly-hired financial analyst with Rollins Company, you have been asked to calculate the firms weighted average cost of capital (WACC).

a) A 14-year bond with an 8 percent semiannual coupon has a par value of $1,000. The price of the bond today is $1,075. What is the companys marginal cost of debt, r_d?

b) The firms preferred stock has a par value of $100 per share, and pays a 5.6% annual dividend. If the preferred stocks current price is $80, what is the firms marginal cost of preferred stock, r_p?

c) The company is expected to pay a year-end common stock dividend (D₁) of $2.10 per share, and the firm has projected a constant growth rate of 5%. The current stock price is $21.875 per share. The firm will need to issue new shares to finance its future projects. If flotation costs are 20 percent, what is the marginal cost of equity, r_e, for the firm?

d) Assuming a target capital structure of 40% debt, 10% preferred stock, and 50% common stock, and a 35% tax rate, what is the firms cost of capital?