Question 7

ABC Stores has 12,000 bonds outstanding at a quoted price of 98 percent of face value. The bonds mature in eleven years and carry a 9 percent annual coupon. What is ABCs after-tax cost of debt if the applicable tax rate is 35 percent?

6.33 percent

6.14 percent

5.77 percent

6.23 percent

6.04 percent

Question 8

The ABC company is unlevered and is valued at $1,280,000. There are currently 32,000 shares outstanding and effective marginal tax bracket is zero. ABC is currently deciding whether including debt in its capital structure would increase its value. The current cost of equity is 12%. And cost of debt is 7% ABC wants to repurchase 2,800 shares. What is the new WACC?

10.00%

9.50%

7.00%

19.00%

12.00%

Question 9

ABC Stores is an all-equity firm that has 80,000 shares of stock outstanding. ABC is considering borrowing $500,000 at 10 percent interest to repurchase 20,000 shares. Ignoring taxes, what is the value of the firm?

$4.00 million

$25.00 million

$6.25 million

$2.00 million

$8.33 million