Part A:

Match the Weighted Average Cost of Capital to each of the scenarios given for ABC Corporation.

- A. B. C. D. E.	"Target capital structure: 57% debt, 11% preferred stock and 32% common equity. Yield to maturity on bonds: 6.8%; Preferred stock dividend: $7.48 per year; current market price of preferred stock is $69.98. CAPM data for common equity: risk-free rate is 4.4%; market risk premium for the average stock is 10.9%; ABC has a beta of 0.87. ABC's marginal tax rate is 40%."
- A. B. C. D. E.	"Target capital structure: 48% debt, 12% preferred stock and 40% common equity. Yield to maturity on bonds: 8.0%; Preferred stock dividend: $6.73 per year; current market price of preferred stock is $69.23. CAPM data for common equity: risk-free rate is 4.0%; market risk premium for the average stock is 4.0%; ABC has a beta of 2.14. ABC's marginal tax rate is 40%."
- A. B. C. D. E.	"Target capital structure: 35% debt, 7% preferred stock and 58% common equity. Yield to maturity on bonds: 4.4%; Preferred stock dividend: $6.14 per year; current market price of preferred stock is $68.64. CAPM data for common equity: risk-free rate is 4.1%; market risk premium for the average stock is 3.8%; ABC has a beta of 1.96. ABC's marginal tax rate is 40%."
- A. B. C. D. E.	"Target capital structure: 56% debt, 6% preferred stock and 38% common equity. Yield to maturity on bonds: 7.2%; Preferred stock dividend: $6.35 per year; current market price of preferred stock is $68.85. CAPM data for common equity: risk-free rate is 5.0%; market risk premium for the average stock is 6.2%; ABC has a beta of 1.12. ABC's marginal tax rate is 40%."
- A. B. C. D. E.	"Target capital structure: 62% debt, 8% preferred stock and 30% common equity. Yield to maturity on bonds: 9.0%; Preferred stock dividend: $6.63 per year; current market price of preferred stock is $69.13. CAPM data for common equity: risk-free rate is 3.3%; market risk premium for the average stock is 12.1%; ABC has a beta of 0.76. ABC's marginal tax rate is 40%."

A.	7.86%
B.	7.51%
C.	8.49%
D.	7.94%
E.	8.25%

Part B:

Compute the weighted average cost of capital for each of these firms. Assume a marginal tax rate of 40 percent.

- A. B. C. D. E.	Target capital structure is 60% debt and 40% common equity. Yield to maturity on bonds is 8.5% and expected return on common equity is 11.1%.
- A. B. C. D. E.	Target capital structure is 70% debt and 30% common equity. Yield to maturity on bonds is 6.7% and expected return on common equity is 11.5%.
- A. B. C. D. E.	Target capital structure is 10% debt and 90% common equity. Yield to maturity on bonds is 4.5% and expected return on common equity is 8.9%.
- A. B. C. D. E.	Target capital structure is 60% debt and 40% common equity. Yield to maturity on bonds is 5.9% and expected return on common equity is 12.1%.
- A. B. C. D. E.	Target capital structure is 20% debt and 80% common equity. Yield to maturity on bonds is 6.5% and expected return on common equity is 10.0%.

A.	7.0%
B.	7.5%
C.	6.3%
D.	8.3%
E.	8.8%