question 3 and 4.

3. ABC holds a diversified $100,000 portfolio consisting of 5 stocks with $20,000 invested in each. The portfolio's beta is 1.10. Jenna plans to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80. What will the portfolio's new beta be? 4. The ABC Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Total liabilities $ 40,000,000 Total shareholders' equity 80.000.000 Total liabilities and shareholders' equity $120,000,000 The stock is currently selling for $25.00 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with annual payments are selling for $875.00. The expected dividend is $1.50 and dividend grows at a constant rate of 7.5%. The flotation cost of issuing new stock is 6%. The firm's tax rate is 40% a. What is the best estimate of the after-tax cost of debt? b. Based on the DCF, what is the firm's cost of retained earnings? c. What is the best estimate for the weight of debt for use in calculating the firm's WACC? d. What is the firm's WACC if the firm uses the retained earings to finance the equity to maintain the current capital structure? JAN 26 tv