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ABC Inc has a bond that is selling at $1250, 10% Coupon paid semi-annually and Maturity value of 1000 after 20 years. Preferred stock has
- ABC Inc has a bond that is selling at $1250, 10% Coupon paid semi-annually and Maturity value of 1000 after 20 years. Preferred stock has a $4 dividend and is selling at $45. Risk free rate is 5% and the market expected return is 12% while ABC Inc has a beta of 1.3. The current stock price is $40. ABC is expected to give next dividend at $1.20 per share with a growth rate of 2%. Stocks sell at a premium of 3% over bonds. ABC has a tax rate of 40%. The following figures are available from ABC balance sheet:
Long term Liability $80 million
Preferred Shares $10 million
Retained Earning $10 million
Equity $100 million
Determine the WACC of ABC Inc.
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