Rollins Corporation is estimating its WACC. It’s current and target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon rate, paid semiannually, a current maturity of 20 years, and sell for $1,040. The firm could sell, at par, $100 preferred stock which pays a $12.00 annual preferred dividend. Rollins’ common stock 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 3 percent. The floatation cost is 5% for debt, 10% for preferred stock, and 25% for common stock. The firm’s marginal tax rate is 40 percent.

**Question 1 (worth 15 out of 100 possible points for the quiz)**

Part a. Calculate the cost of** existing** debt.

Part b. Calculate the cost of **new** debt.

**Question 2 (worth 15 out of 100 possible points for the quiz)**

Part a. Calculate the cost of **existing** preferred stock.

Part b. Calculate the cost of **new** preferred stock.

**Question 3 (worth 15 out of 100 possible points for the quiz)**

Part a. Calculate the cost of **existing** common stock.

Part b. Calculate the cost of **new** common stock.

**Question 4 (worth 15 out of 100 possible points for the quiz)**

Part a. Calculate the weighted average cost of capital (WACC) for **existing** capital

Part b. Calculate the weighted average cost of capital (WACC) for **new** capital