Question
ABBC Inc operates a very successful chain of yogurt and coffee shops spread across the southern part of the United States and need to raise
ABBC Inc operates a very successful chain of yogurt and coffee shops spread across the southern part of the United States and need to raise funds for its planned expansion into the Northwest. The firms balance sheet at the close of 2015 appeared as follow
Cash $2,020,000
Accts, Rec $4,220,000
Inve. $1,460,000
Net Pro $32,871,000
Total Assets $40,571,000
Long Term Debt $8,821,000
Common Equity $$31,750,000
Total Debt and Equ. $40,571,000
At present, the firm's common stock is selling for a price equal to 3 times its book value, and the firms investors require a return of 18 percent. The firms bonds command a yield to maturity of 8 percent and the firms face a tax rate of 34 percent. At the end of the previous year, ABBC's bonds were trading near their par value
A) What is the proportion of debt financing in ABBC's capital structure?
___% ( Round to two decimal places)
What is the proportion of equity financing in ABBCS Capital structure
___%( Round to two decimal places)
B) What is ABBC's Weighted average cost of capital?
____%( Round to two decimal places)
C) If ABBC's stock price were to rise such that it sold .5 times its book value and the cost of equity fell to 15 percent, what would the firm's weighted average cost of capital be ( Assuming the cost of debt and tax rate do not change)?
____% ( Round to two decimal Places)
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