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How to solve a-h? 9. ABC Company has a target Debt Ratio of 50%. ABC has a debt issue outstanding that is currently trading at
How to solve a-h?
9. ABC Company has a target Debt Ratio of 50%. ABC has a debt issue outstanding that is currently trading at 91% of its par value of $1,000. The outstanding issue pays annual interest payments, has a coupon rate of 9.5%, and 5 years remaining until maturity; new debt with a 30-year original maturity will incur an 8% flotation cost. Further, ABC's common stock trades currently at a price of $31.25 and the market expects ABC to pay a dividend in one year of $4.00 (ABC just paid a dividend of $3.64, and this growth rate is expected to continue): ABC pays out all net income as dividends; and new equity will incur a 14% flotation cost. ABC's tax rate is 40%. a. What is the YTM on ABC's existing debt? 12.00% What is ABC's before tax cost of debt? 13.07% b. c. What is ABC's after-tax cost of debt? 7.84% What is ABC's expected future growth rate? 9.89% d. e. What is ABC's cost of internal equity? 22.69% f. What is ABC's cost of external equity? 24.77% What is ABC'S WACC with internal equity? 15.27% h What is ABC'S WACC with external cquity? 16.31% Step by Step Solution
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