BUS 310 CH. 11 QUIZ 2026 STUDY GUIDE |
BUSINESS MANAGEMENT PRACTICE
QUESTIONS, ANSWERS & RATIONALES
| GRADED A+ | GUARANTEED SUCCESS
Updated 2026 Questions and Answers
100% Verified Exam Prep and Comprehensive
Rationales Included
, Rollins Corporation 16.0%
Rollins Corporation is constructing its MCC schedule. Its
target capital structure is 20 percent debt, 20 percent
preferred stock, and 60 percent common equity. Its
bonds have a 12 percent coupon, paid semiannually, a
current maturity of 20 years, and sell for $1,000. The firm
could sell, at par, $100 preferred stock which pays a 12
percent annual dividend, but flotation costs of 5 percent
would be incurred. Rollins' beta is 1.2, the risk-free rate is
10 percent, and the market risk premium is 5 percent.
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. The firm's policy is to use a risk
premium of 4 percentage points when using the bond-
yield-plus-risk-premium method to find rs. The firm's net
income is expected to be $1 million, and its dividend
payout ratio is 40 percent. Flotation costs on new
common stock total 10 percent, and the firm's marginal
tax rate is 40 percent.
Refer to Rollins Corporation. What is Rollins' cost of
retained earnings using the CAPM approach?
Diggin Tools just issued new preferred stock, which sold 11.7%
for $85 in the stock markets. Holders of the stock will
receive an annual dividend equal to $9.35. The flotation
costs associated with the new issue were 6 percent and
Diggin's marginal tax rate is 30 percent. What is Diggin's
cost of preferred stock, rps?
J. Ross and Sons Inc. $30,000
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.
Refer to J. Ross and Sons Inc. Where will a break in the
WACC curve occur?
BUSINESS MANAGEMENT PRACTICE
QUESTIONS, ANSWERS & RATIONALES
| GRADED A+ | GUARANTEED SUCCESS
Updated 2026 Questions and Answers
100% Verified Exam Prep and Comprehensive
Rationales Included
, Rollins Corporation 16.0%
Rollins Corporation is constructing its MCC schedule. Its
target capital structure is 20 percent debt, 20 percent
preferred stock, and 60 percent common equity. Its
bonds have a 12 percent coupon, paid semiannually, a
current maturity of 20 years, and sell for $1,000. The firm
could sell, at par, $100 preferred stock which pays a 12
percent annual dividend, but flotation costs of 5 percent
would be incurred. Rollins' beta is 1.2, the risk-free rate is
10 percent, and the market risk premium is 5 percent.
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. The firm's policy is to use a risk
premium of 4 percentage points when using the bond-
yield-plus-risk-premium method to find rs. The firm's net
income is expected to be $1 million, and its dividend
payout ratio is 40 percent. Flotation costs on new
common stock total 10 percent, and the firm's marginal
tax rate is 40 percent.
Refer to Rollins Corporation. What is Rollins' cost of
retained earnings using the CAPM approach?
Diggin Tools just issued new preferred stock, which sold 11.7%
for $85 in the stock markets. Holders of the stock will
receive an annual dividend equal to $9.35. The flotation
costs associated with the new issue were 6 percent and
Diggin's marginal tax rate is 30 percent. What is Diggin's
cost of preferred stock, rps?
J. Ross and Sons Inc. $30,000
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.
Refer to J. Ross and Sons Inc. Where will a break in the
WACC curve occur?
