Question
Can you do in excel Rollins Corporation is estimating its WACC. Its only bond issue has a 6.07 percent annual yield to maturity, par value
Can you do in excel
Rollins Corporation is estimating its WACC. Its only bond issue has a 6.07 percent annual yield to maturity, par value of $1,000, mature in 20 years, and has a 5.2% coupon paid semiannually (2.6%). There is $100 million total par value of debt outstanding. The firm currently has a $100 par preferred stock that pays a 7.5 percent annual dividend and currently yields 6 percent. Flotation costs of 5 percent must be incurred on any new issue of preferred. Current outstanding preferred stock has a total book value of $8 million. Rollins' beta is 1.25, the risk-free rate is 4.5 percent, and the market risk premium is 6 percent. Rollins is a constant-growth firm that just paid a dividend of $0.47 last year. Its common stock sells for $10.00 per share, has a dividend growth rate of 7 percent, and there are 10 million shares outstanding. The CFO estimates that internally generated cash will be sufficient to supply additional equity funding. The firm's policy is to use a risk premium of 6 percentage points when using the bond-yield-plus-risk-premium method to find rs. The firm's marginal tax rate is 40 percent. Please show all work and place answers in the space provided. If you get stuck on an answer, assume a number, tell me, and continue onward to receive credit on other answers.
- What is Rollins' cost of debt?____________
- What is Rollins' cost of preferred stock?________
- What is Rollins' cost of common stock (rs) using the CAPM approach?_______
- What is the firm's cost of common stock (rs) using the DCF approach?_______
- What is Rollins' cost of common stock using the bond-yield-plus-risk-premium approach?_______
- Given your answers to the three previous questions, provide and explain your estimate of the cost of equity?________
- What are the appropriate weights for debt, preferred stock, and common stock?
Debt weight _______
Preferred stock weight _______
Common equity weight _______
- What is Rollins' WACC?_______
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started