q1
ABC has the following capital structure. What is the WACC for the company?
Debt:
Bond 1. 400,000 bonds with a coupon rate of 6% (paid semi-annually), a price quote of 110.0 and have 20 years to maturity.
Bond 2. 300,000 zero coupon bonds (semi-annual compounding) with a price quote of 40.0 and 25 years until maturity.
Preferred stock:
600,000 shares of 4 percent preferred stock with a current price of $60, and a par value of $100.
Common stock:
12,000,000 shares of common stock, with a price of $80, and a beta of 1.3.
Market:
The corporate tax rate is 40 percent, the market risk premium is 9%, and the risk-free rate is 4%.
Question 2
The ABC stock has a beta of 1.4. The company just paid a dividend of $2.0, and the dividend is expected to grow at 6% per year, indefinitely. The expected market return is 14%, and the risk-free is 4%. The most recent stock price for ABC is $60. Calculate the cost of equity using the SML method.
Q1
capital=44+12+36+960=1052
let's N=120
let's N=50
Q2
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