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ABC?s CFO is considering whether to take on a new...




ABC?s CFO is considering whether to take on a new project that has average risk. He collected the following information: ? The company has bonds outstanding that mature in 26 years with an annual coupon of 7.5 percent. The bonds have a face value of $1,000 and sell in the market today for $920. There are 10,000 bonds outstanding. ? The risk-free rate is 6 percent. ? The market risk premium is 5 percent. ? The stock?s beta is 1.2. ? The company?s tax rate is 40 percent. ? The company has 50,000 shares of preferred stock with a par value of $100. These shares are currently trading at $105 and pay an annual dividend of $5.40. ? The company also has 1,850,000 common shares trading at $25. These shares last paid an annual dividend of $0.93. 1. What is ABS?c after-tax cost of debt? 2. What is ABC?s cost of preferred equity? 3. What is ABC?s Wd?


Paper#7004 | Written in 18-Jul-2015

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