Question
The following is the current market information about ABC company: 1. The retained earnings are $24,000,000. 2. A long-term bank loan of $20,000,000 with an
The following is the current market information about ABC company: 1. The retained earnings are $24,000,000. 2. A long-term bank loan of $20,000,000 with an annual interest rate of 5%. 3. 10,000 bonds with a coupon rate of 5% are in circulation and mature in 15 years.The face value of each bond is $1,000, with interest paid semi-annually and sold at 102% of the face value.
4. 15,000,000 common shares with a par value of $1 are outstanding, and the sale price per share is $6. The last time the company paid a dividend of $0.5 per share, the dividend will grow at a rate of 4% per year.
ABC company is considering developing a new project. This plan requires an investment of $5,000,000, which will permanently provide the company with an annual net cash flow of $1.2 million after tax.
Assuming that the companys tax rate is 16%, please calculate the weighted average cost of capital for Prosperity (WACC).
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