Exercise 1: ABC Inc.s capital structure consists only of bond and common equity. The market value of its existing bond is $200 million and the pre-tax cost of debt is 8%. ABC Inc. has 34 million shares outstanding and its stock is currently traded at $15.78 per share. The required rate of return for the stock is 10.60%. Other financial information for the current year (dollars in millions) is as follows:

Net income available to common shareholders = $128.

Interest Expense = $18.3.

Depreciation = $24.

Accounts receivable decreased by $40, inventory increased by $32.

Current liabilities increased by $15;

Fixed capital investment = $85.

Debt principal repaid is $18 and new debt issuance is $27.

Tax rate = 21%.

Expected long-term growth rate of FCFF = 4.6%.

Expected long-term growth rate of FCFE = 5.8%.

Calculate ABC Inc.s WACC, total firm value, and total equity value.

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