Question
ABC Inc. is a company with a target capital structure of 40% debt, 50% equity, and 10% preferred stock. The before-tax cost of debt is
ABC Inc. is a company with a target capital structure of 40% debt, 50% equity, and 10% preferred stock. The before-tax cost of debt is 8%, the cost of equity is 15%, and the cost of preferred stock is 10%. The companys tax rate is 25%. Currently, the company has outstanding debt of $5 million with a yield to maturity of 9%. The companys common stock is trading at $40 per share and there are 500,000 shares outstanding. The preferred stock has a par value of $100 per share and is currently trading at $110 per share. The company plans to issue new debt to raise $10 million for a new project. The company has a beta of 1.2, and and the risk-free rate is 3%, while the market risk premium is 8%. What is the WACC of ABC Inc. after issuing the new debt for the new project?
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