7.11 ABC Incorporated shares are currently trading for $32 per share. The firm has 1.13 billion shares
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7.11 ABC Incorporated shares are currently trading for $32 per share. The firm has 1.13 billion shares outstanding.
In addition, the market value of the firm’s outstanding debt is $2 billion. The 10-year Treasury bond rate is 6.25%. ABC has an outstanding credit record and has earned a AAA rating from the major credit-rating agencies. The current interest rate on AAA corporate bonds is 6.45%. The historical risk premium over the federal, state, and local taxes, is 40%.
a. What is the cost of equity? Answer: 12.3%
b. What is the after-tax cost of debt? Answer: 3.9%
c. What is the weighted average cost of capital? Answer: 11.9%
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Related Book For
Mergers Acquisitions And Other Restructuring Activities
ISBN: 9780128150757
10th Edition
Authors: Donald DePamphilis
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