What is the weighted average cost of capital for new bonds

Assignment Help Accounting Basics
Reference no: EM131765158

Question: Rollins Corporation is estimating its WACC. It's current and target capital structure is 40 percent debt and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,040. Rollins' beta is 1.2, and the risk-free rate is 10 percent. Rollins is a constant-growth firm which just paid a dividend of $2.00. Its stock sells for $27.00 per share, and has a growth rate of 8 percent. The firm's marginal tax rate is 40 percent.

a. If the floatation cost for debt is 5% and the floatation cost for equity is 15%, what is the weighted average cost of capital (WACC) for new funds?

b. Given the floatation costs in question 4 above, how much capital, debt and equity, does the firm have to raise to receive $10 million?

Reference no: EM131765158

Questions Cloud

Prepare and incremental analysis for the special order : Gruner and Company produces golf disks which it normally sells to retailers for 7 dollars each. Prepare and incremental analysis for the special order
What are the robin prime costs : Robin Company has the following balances for the current month: Direct materials used $14,500 Direct Labor $23,750 Sales salaries $13,600.
Preferred stock issued for company : What is the cost of equity for Company DD, if there's no preferred stock issued for this company?
Compute current net income for nichols company : Nichols Company makes three models of phases. Compute current net income for Nichols Company
What is the weighted average cost of capital for new bonds : If the floatation cost for debt is 5% and the floatation cost for equity is 15%, what is the weighted average cost of capital (WACC) for new funds?
Discuss accounts used to record product costs : Accounts Used to Record Product Costs. Match each of the following accounts with the appropriate description that follows
Calculate the weight for beta : They help us understand the risk between each beta and gives us the ability to calculate the weight for each beta.
Calculate the z statistic for this sample : Create percentile ranks assuming the scores are normally distributed.Calculate the z statistic for this sample.
Calculate the minimum transfer price : Raphael, Inc. has a division that manufactures a component that sells for $190 and has a variable cost of $35. Another division of the company wants.

Reviews

Write a Review

Accounting Basics Questions & Answers

  Compute the dollar amount of the weekly payroll

Denton Corporation employs 50 workers in its plant. Each employee is paid $10 per hour and works seven hours per day, Monday through Friday. Employees are paid every Friday. The last payday was Friday, September 19.

  Prepare a production budget for november

Prepare a production budget for November - Prepare a supporting schedule to determine required material for production and a direct materials purchase budget for November

  How should ott respond to habbe remark about firing

Thinken Technology recently merged with College Elec-tronix (CE), a computer graphics company. How should Ott respond to Habbe's remark about firing nonvested

  Allocating the actual cost of advertising and promotion

The most likely cost driver base for allocating the actual cost of advertising and promotion would be:

  Calculate the new information database

Your company will generate $55,000 in revenue each year for the next eight years from a new information database. The computer system needed to set up the database costs $250,000.

  Disappointed with the high level of inventory

Based on Brout (1981). Planner's Peanuts sells 100 products. The company has been disappointed with the high level of inventory it keeps of each product and its low service level (percentage of demand met on time).

  Corporate scandals involving undisclosed liabilities

We often hear of corporate scandals involving undisclosed liabilities, artificially inflated earnings statements, ethics violations, etc. The results of some of the more notorious misdeeds have had a very unfavorable impact on some shareholders' ..

  Estimate the outage rates

Power line outages. Seven power lines of different lengths had outages as shown below. The exposure of a line equals its length times the years observed. Assume that the number of outages has a Poisson distribution

  Overhead incurred for 86000 actual direct labor hours

manufacturing overhead data for the production of product z by lee company are as follows. overhead incurred for 86000

  Production method is used for both assets.

During 2013, Terra logged 500,000 of the estimated five million board feet of timber.

  Review problem on business sells sunglasses

Assume a business sells sunglasses. Estimated sales are: July: 15,000 units, August: 20,000 units and September: 10,000 units and October: 5,000 units.

  Accounting and auditing enforcement release

Obtain a copy of Accounting and Auditing Enforcement Release (AAER) No. 3146, issued by the SEC on June 24, 2010.

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