WACC. Parker Product issues bonds with a 12 percent coupon, paid semiannually, a maturity of 20 years, that sell for $1,000 each. The firm could sell, at par, $100/share preferred stock that pays a 12 percent annual dividend, but flotation costs of 5 percent would be incurred. Rollins beta is 1.2, the risk-free rate is 10 percent, and the market risk premium is 5 percent. The firms marginal tax rate is 40 percent. SHOW ANY EQUATION USED

3. a) What is Rollins cost of debt?

2. b) What is Rollins cost of preferred stock? (Hint: dont forget flotation)

3. c) What is Rollins cost of retained earnings using the CAPM approach?

4. d) Give the correct answer: Compared to the answer in part c),, If Rollins had to issue new common stock, its cost of equity would be

5. a) lower

6. b) higher

7. c) the same