What is rollins cost of equity when using the dcf approach

Assignment Help Financial Management
Reference no: EM131597747

Rollins Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Rollins' beta is 1.2 , the risk-free rate is 5 percent, and the market risk premium is 6 percent. Rollins is a constant-growth firm which just paid a dividend of $2.00, sells for $32 per share, and has a growth rate of 5 percent. The firm's policy is to use a risk premium of 3 percentage points when using the bond-yield-plus-risk-premium method to find rs. The firm's marginal tax rate is 32 percent. What is Rollins cost of equity when using the DCF approach? Express your answer in percentage (without the % sign) and round it to two decimal places.

Reference no: EM131597747

Questions Cloud

What will be the resulting percentage change in ebt : What will be the resulting percentage change in EBT if they expect units sold to changes by 2.2 percent?
Makes no withdrawals during that period : assuming she makes no withdrawals during that period?
What was the purchasing power of dollar : What was the purchasing power of a dollar at the beginning of 2004 compared to that at the beginning of 2000?
Using manganese dioxide filtration prior to addition : contracts the removal of small amounts of hydrogen sulfide from its well water using manganese dioxide filtration prior to addition of chlorine and fluoride.
What is rollins cost of equity when using the dcf approach : What is Rollins cost of equity when using the DCF approach?
Specializes in precision metal fabrication : specializes in precision metal fabrication-How much can company afford to spend now if minimum attractive rate of return is 12% per year compounded monthly?
What effective interest rate per year : An interest rate of 16% per year compounded quarterly is equivalent to what effective interest rate per year?
Finances its projects with debt and preferred stock : Johnson Industries finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock.
Consumption and trade balance in year of tsunami : Calculate Indonesia’s consumption and trade balance in the year of the tsunami and subsequent years.

Reviews

Write a Review

Financial Management Questions & Answers

  Stock is expected to pay dividend-what is the forward price

A stock is expected to pay a dividend of $1.50 per share in 2 months and 5 months. The stock price is $50, risk free rate is 8%. An investor has taken a long position in a 6 month forward contract on a stock Three months later the price of the stock ..

  Financial department of delphi consolidated industries

The financial department of Delphi Consolidated Industries (DCI) is just starting a 2-week retreat in the Canadian wilderness. The president of DCI has been approached by an investment banker who has acquired $1,000,000 in DCI bonds in one of his dea..

  What is the stock expected price seven years from today

The dividend is expected to grow at a constant rate over time of 6%. What is the stock’s expected price seven years from today?

  Required an initial investment

A project in South Korea required an initial investment of 2 billion South Korean won. The project is expected to generate net cash flows to the subsidiary of 3 billion and 4 billion Won in two years of operation respectively. The project has no salv..

  What are direct costs-indirect cost of financial distress

What are direct costs and indirect cost of financial distress? What are the impacts of each cost on firm’s value? Suppose you are a rational investor.

  What is the real rate of return on this bond

A bond that pays interest annually yields a rate of return of 10.00 percent. The inflation rate for the same period is 4 percent. What is the real rate of return on this bond?

  Experiencing rapid growth-stock price

Navel County Choppers Inc. is experiencing rapid growth. The company expects dividends to grow at 17 percent per year for the next 12 years before leveling off at 6 percent into perpetuity. The required return on the company’s stock is 12 percent. If..

  Which mutually exclusive project should be selected

Which mutually exclusive project should be selected, based on a 12% cost of capital and the following: IRR(A)= 15%, IRR(B)= 13%; incremental IRR(B-A)= 18%? Why?

  Suppose microsoft projected free cash flow

Suppose Microsoft projected free cash flow for next year is FCF = $8.75 billion, and due to expected lower revenues and slower growth sales FCF is expected to grow at a constant rate of only 4.5% into the infinite future. The company’s weighted avera..

  Bond with a face value of annual coupon payments

A bond with a face value of $1,000 has annual coupon payments of $100 and was issued seven years ago. The bond currently sells for $1,085, has eight years left to maturity. This bond's ________ must be less than 10%.

  Standard deviation of the expected return

Determine the standard deviation of the expected return.

  Trust agreement allocates fees-capital gains and losses

If the trust agreement allocates fees, capital gains and losses, as well as casualty gains and losses to corpus, trust accounting income is

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd