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

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Part A: Match the Weighted Average Cost of Capital to each of the scenarios given for ABC Corporation. - A. B. C. D. E. Target

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%.