Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Company ABC is a large publicly traded firm, a market leader in producing self-driving agricultural machines. The company is looking at setting up a manufacturing

Company ABC is a large publicly traded firm, a market leader in producing self-driving agricultural machines. The company is looking at setting up a manufacturing plant overseas to produce a new line of self-driving tractors. This will be a four-year project. The plant and equipment will cost $100 million to build. The market data on ABCs securities is following:

Debt: 589945 5.6 percent coupon bonds outstanding, 20 years to maturity, selling for $1080 each; the bonds have a $1,000 par value each and make semiannual payments. The YTM of the bonds is 4.96 percent.

Common stock: 22798830 shares outstanding, selling for $56 per share; the beta is 1.

Preferred stock: 1916662 shares of preferred stock outstanding, promising $5 per share dividend, selling for $85 per share.

Market: 7 percent expected market risk premium; 3 percent risk-free rate.

ABC faces 8 percent floatation costs of new common stock issues, 6 percent on new preferred stock issues, and 4 percent on new debt issues. ABCs tax rate is 34 percent.

Calculate the weighted average cost of capital (WACC).

Express your answer as percent.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Futures And Options Markets

Authors: John C. Hull

4th Edition

0130176028, 9780130176028

More Books

Students also viewed these Finance questions