ABC Inc.’s currently outstanding 9% coupon bonds have a yield to maturity of 8%. ABC believes...

ABC Inc.’s currently outstanding 9% coupon bonds have a yield to maturity of 8%. ABC believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 30%, what is ABC’s after-tax cost of debt, rd?

Also, ABC can issue perpetual preferred stock at a price of $50 a share with an annual dividend of $3.00 a share. What is the company’s cost of preferred stock, rps?

Besides, ABC has a beta of 1.4. The long term risk-free rate is 6%, while the market risk premium is 5.5%, and the return on an average stock in the market last year was 14%. What is the estimated cost of common equity, re using the CAPM?

Finally, if the tax rate is 30% and ABC has a target capital structure of 40% debt, 5% preferred stock, and 55% common stock, what is its WACC?

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jeff jeffy answered 1 year ago

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