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Rollins Corporation’s 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 $1,200 in the market now. The price of firm’s newly issued preferred stock is $100 and the flotation cost is 5 percent. The company pays an annual dividend of $12 to its preferred stockholders. Rollins' beta is 1.2, the risk-free rate is 10 percent, and the market risk premium (which is the difference between market return and risk free rate) 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 Debt -cost-plus-risk-premium method to find ks. The firm's net income is expected to be $1 million, and its dividend payout ratio is 40 percent. Flotation costs on new common stock total 10 percent, and the firm's marginal tax rate is 40 percent.
What is Rollins' after-tax cost of debt?
A. 10.0%
B. 9.1%
C. 8.6%
D. 8.0%
E.7.2%
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TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $1,500,000 and there are 135,000 shares outstanding. If the benchmark price-sales ratio for the company is 5.5. What is the current stock price? If the ben..
What does this function imply about the effect of the law of the law of diminishing returns on Kelson's short-run cost function and calculate the marginal cost of production at 1500, 2000, and 3500 units of output.
markets are in equilibrium
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