Refer to Rollins Corporation What is Rollins cost of retained earnings using

Refer to rollins corporation what is rollins cost of

  • Troy University
  • ACCT 2292
  • Notes
  • AgentStarAlbatross9110
  • 23
  • 100% (63) 63 out of 63 people found this document helpful

This preview shows page 19 - 23 out of 23 pages.

45.Refer to Rollins Corporation. What is Rollins' cost of retained earnings using the bond-yield-plus-risk-premium approach? a.13.6%b.14.1%c.16.0%d.16.6%e.16.9%
Image of page 19
22 Chapter 11      The Cost of Capital ANS: CCost of retained earnings (Bond yield plus risk premium approach):ks= 12.0% + 4.0% = 16.0%. DIF: Easy OBJ: TYPE: Problem TOP: Cost of equity: Risk premium 46.Refer to Rollins Corporation. What is Rollins' lowest WACC? DIF: Easy OBJ: TYPE: Problem TOP: WACC 47.Refer to Rollins Corporation. What is Rollins' retained earnings break point? DIF: Easy OBJ: TYPE: Problem TOP: RE break point 48.Refer to Rollins Corporation. What is Rollins' WACC once it starts using new common stock financing? DIF: Easy OBJ: TYPE: Problem TOP: WACC above break point
Image of page 20
Chapter 11     The Cost of CapitalJackson CompanyThe Jackson Company has just paid a dividend of $3.00 per share on its common stock, and it expects this dividend to grow by 10 percent per year, indefinitely. The firm has a beta of 1.50; the risk-free rate is 10 percent; and the expected return on the market is 14 percent. The firm's investment bankers believe that new issues of common stock would have a flotation cost equal to 5 percent of the current market price.49.Refer to Jackson Company. How much should an investor be willing to pay for this stock today? 23 a.$62.81b.$70.00c.$43.75d.$55.00e.$30.00ANS: Dks= 10% + 1.5(4%) = 16%. DIF: Easy OBJ: TYPE: Problem TOP: Prices of stock 50.Refer to Jackson Company. What will be Jackson's cost of new common stock if it issues new stock in the marketplace today? DIF: Easy OBJ: TYPE: Problem TOP: Cost of external equity J. Ross and Sons Inc.J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current after-tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this rate. The firm's preferred stock currently sells for $90 a share and pays a dividend of $10 per share; however, the firm will net only $80 per share from the sale of new preferred stock. Ross expects to retain $15,000 in earnings over the next year. Ross' common stock currently sells for $40 per share, but the firm will net only $34 per share from the sale of new common stock. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year.51.Refer to J. Ross and Sons Inc. What is the firm's cost of retained earnings?
Image of page 21
24 Chapter 11      The Cost of Capital DIF: Easy OBJ: TYPE: Problem TOP: Cost of retained earnings
Image of page 22
Image of page 23

You've reached the end of your free preview.

Want to read all 23 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture