help with question K
ABC currently has outstanding 12-year bond with 7% coupon that pays semiannually; the current market price is S1075. What is ABC's cost of debt? (8 points) a. -(rate(12*21 000*7%/2-1075,1000))*2 ABC cost of debt is 6.11% b. ABC's beta is 1.15, the 20-year T-bond has a yield to maturity(YTM) of 3.25%, and the market risk premium is 7.5%. What is ABC's cost of common stock? (5 points) -3.24% + 7.5% * 1.15 -ABC cost of common stock is 1 1.875% ABC's preferred dividend is $3.75 dollar and the price of ABC's preferred stock is $50. What is ABC's cost of preferred stock? (8 points) c. ABC cost of preferred stock is 7.5% Last year, ABC had earning per share (EPS) of S3.5, and ABC paid S1.6 in dividend per share. Given ABC's ROE is 9%, what is ABC's growth rate for common stock? (8 points) d. ABC growth rate for common stock is 4.89% e. 6 years ago, ABC issued $20 million bond at par. Assume this is the only bond that ABOC has now. What is the market value of debt for ABC? (8 points) (Hint: check previous parts for necessary information) = the market value of debt for ABC is $21,500.00 f. Assume ABC's dividend will continue to growth as the same pace as before, what is ABC's share price should be? (8 points) ABC shore price should it grow at the same pace would $24.01 Assume ABC has 3.25 million common shares outstanding, what is the market value of common stock? (8 points) g. Marker value of the common stock is 78.03 million h. Assume ABC has $8 million preferred stock, what are market value weighted for debt, preferred stock and common stock? (9 points) equity 78,032,500 weight 0.7257 debt 21,500,000 weight 0.1999 -perf stock 8,000,000 weight 0.0744 Total 107,532,500 i, what is ABC's cost of capital? Assume ABC's marginal tax rate is 25%. (9 points) (.7257*.11875)+((.1999*0611-25))+(0744*.075) 10.09% j. If ABC is considering a new project for $50 million. They can borrow $15 million from debt, $5 million preferred stocks, and financing the remaining in retained earnings (part of common stock). Assume ABC will carry the same cost for each source of capital, what is ABC's cost of capital on this new project? (9 points) -The cost of capital on ABC's new project would be 9.25% k. Assume the project will produce $14m Free Cash Flows (FCF) in the first year, $16m FCF in the second year, $18m FCF in the third year, and ABC plans to stop the project at the end of year 3. Assume the cost for the project is $50m, and they can sell the project for S15M (Terminal value) at the end of the project. What is the NPV for this project? (10 points)
