ABC's outstanding 5% coupon rate bonds mature in 10 years, and are selling for $900. The...

ABC's outstanding 5% coupon rate bonds mature in 10 years, and are selling for $900. The bonds make annual coupon payments.

ABC preferred stock pays $2.00 dividend per share and sells for $50 per share.

ABC common has a beta of 1.1, the risk free rate is 3% and the expected return on the market is 8%.

ABC's optimal capital structure is 30% debt, 10% preferred stock, and 60% common equity. Tax rate is 40%.

Would you show how you calculate the following:

a. after-tax cost of debt = 3.8% I have the equation rd (1-T) but not sure what rd would be?

b. preferred stock = 4% I have the equation, rps = dividend on preferred stock/value of preferred stock but not sure if this is correct and what to plug in?

c. common stock = 8.5%

d. WACC = 6.6% I have the equation but not sure what each is to insert in the equation: wdrd(1-T) + wprp + wsrs

Expert Solution

jeff jeffy answered 1 year ago

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