Problem:

Rollins Corporation has a target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 10 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $849.54. The firm could sell, at par, $100 preferred stock, which pays a $12 annual dividend. 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. Flotation costs on new common stock total 10 percent, and the firm's marginal tax rate is 40 percent.

Required:

Question 1: What is Rollins' cost of debt?

Question 2: What is Rollins' cost of preferred stock?

Question 3: What is the firm's cost of retained earnings?

Question 4: What is the cost of new equity of the firm? How to find numbers?

Note: Explain all calculation and formulas.