Rollins Corporation is constructing its MCC schedule. Its target capital structure is 20 percent debt. 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. The firm could sell, at par, $100 preferred stock which pays a 12 percent annual dividend, but flotation costs of 5 percent would be inclined. Rollins= beta is 1.2, the risk-free rate is 10 percent, and the market risk premium is 5 percent. Rollins is a constant growth firm which just paid a dividend of $2.00. sells for $27.00 per share, and has a growth rate of 8 percent. The firm=s policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium method to find k_s. What is Rollins' component cost of debt? a. 10.0% b. 9.1% c. 8.6% d. 8.0% e. 7.2 e. 7.2% Cost of debt Since the bond sells at par of $1,000, its YTM and coupon rate (12 percent) are equal. Thus, the before-tax cost of debt to Rollins is 12.0 percent. The after-tax cost of debt equals. k d, After-tax = 12.0%(1 - 0.40) = 7.2%. Financial calculator solution: Inputs: N = 40; PV = -1,000; PMT = 60; FV = 1,000; Output: I = 6.0% - k d/2 k d = 6.0% times 2 = 12%. k d (1 - T) = 12.0%(0.6) = 7.2%. I see what they did here... My question is where did they get the PMT (60)