Rollins Corporation is determining its WACC.

Its target capital structure is $30$ percent debt, $20$ percent preferred stock, and $50$ percent common equity. Its bonds have a $7$ percent coupon, paid semiannually, par value of $$1,000,$ a current maturity of $30$ years, and sell for $$886\mathrm{.}88.$ The firm could sell, at par, $$100$ preferred stock which pays a $10$ percent annual dividend, but flotation costs of $3$ percent would be incurred.

Rollins' beta is $1\mathrm{.}5,$ the risk$-$free rate is $4$ percent, and the expected return on the market portfolio $(=rM$ is $12$ percent. Rollins is a constant growth firm which just paid a dividend of $$2\mathrm{.}00,$ sells for $$20$ per share, and has a growth rate of $5$ percent. The firm's net income is expected to be $$2$ million, and its dividend payout ratio is $30$ percent. After flotation costs, new common stock will sell for $$17.$

The firm's marginal tax rate is $20$ percent.

What is Rollins' after$-$tax component cost of debt?

$496$

$4\mathrm{.}5\%$

$4\mathrm{.}8\%$

$5\mathrm{.}2\%$

$6\mathrm{.}4\%$

Question $2$

What is Rollins' cost of preferred stock?

$($A$)8\mathrm{.}92\%$