All five final answers should be rounded to 2 decimal places. Input all the answers as a decimal and not as a percentage, e.g. 0.11 not 11%.

ABC Inc. has the following optimal (and therefore planned) capital structure: 40% debt and 60% common equity. Its tax rate is 40%. Bonds outstanding are currently selling for $882.21. They mature in 10 years, pay an annual coupon of 9%, and have a face value of $1,000. The beta on their common stock is 1.6; the Treasury bond rate (risk free return) is 2.5% and the S&P500 average return (market return) is 5.5%. Compute ABC Inc.s WACC step-wise.

25.3 (2 points) What is the pre-tax cost of debt ?

25.4 (2 points) What is the cost of equity ?

25.5 (2 points) What is ABC Inc's WACC ?