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# 4- Rollins Corporation is constructing its marginal cost of capital (MCC) schedule. Its target capital structure

**4- Rollins Corporation is constructing its marginal cost of capital (MCC) schedule. Its target capital structure**

is 30 percent debt, 20 percent preferred stock, and 50 percent common equity. Its bonds have a 12 percent coupon rate of interest, semiannual interest payments, a current maturity of 20 years, and a market value equal to their par value of $1,000. The firm's marginal tax rate is 40 percent. What is Rollins' after-tax cost of debt?

a. 7.2%

b. 12.0%

c. 8.4%

d. 3.6%

e. 4.8%

5- Alpha Inc.'s beta coefficient is 1.2, the risk-free rate is 10 percent, and the market risk premium is 5 percent. Based on the capital asset pricing model (CAPM), what should be Alpha's cost of retained earnings?

a. 18%