(Weighted

average cost of

capital)

ABBC Inc. operates a very successful chain of yogurt and coffee shops spread across the southwestern part of the United States and needs to raise funds for its planned expansion into the Northwest. The firm's balance sheet at the close of 2015 appeared as follows:

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At present, the firm's common stock is selling for a price equal to 3 times its book value, and the firm's investors require a return of 16 percent. The firm's bonds command a yield to maturity of 8 percent, and the firm faces a tax rate of 36

percent. At the end of the previous year, ABBC's bonds were trading near their par value .a. What does ABBC's capital structure look like? b. What is ABBC's weighted average cost of capital? c. If ABBC's stock price were to rise such that it sold at 3.5 times its book value and the cost of equity fell to 13

percent, what would the firm's weighted average cost of capital be (assuming the cost of debt and tax rate do not change)?

C 4. Determine 1 X C Fijisawa Inc. Is x P Take a Test - Joanne Wooley - Google Chrome 0 X V X - C coursehero.com/tutors mathxl.com/Student/PlayerTest.aspx?testld=236504298¢erwin=yes G Apps Canvas- JCCC % Calculator FIN-30000-OA-FA2-2021 Joanne Wooley | 12/05/21 8:48 PM Reading list = Test: Modul... Question 7 of 25 This test: 100 point(s) possible This question: 4 point(s) possible Submit test (Weighted average cost of capital) ABBC Inc. operates a very successful chain of yogurt and coffee shops spread across the southwestern part of the United States and needs to raise funds for its planned expansion into the Northwest. The firm's balance sheet at the close of 2015 appeared as follows: At present, the firm's common stock is selling for a price equal to 3 times its book value, and the firm's investors require a return of 16 percent. The firm's bonds command a yield to maturity of 8 percent, and the firm faces a tax rate of 36 percent. At the end of the previous year, ABBC's bonds were trading near their par value. a. What does ARE b. What is ABBQ C. If ABBC's sto X of capital be (as Data table average cost a. What is the p Cash $ 2,070,000 % (Round to Accounts receivable 4,710,000 Inventories 1,820,000 Long-term debt $ 8,997,000 What is the prop Net property, plant, and equipment 32,861,000 Common equity 32,464,000 % (Round to Total assets $ 41,461,000 Total debt and equity $ 41,461,000 b. What is ABBQ % (Round to C. If ABBC's sto Print Done I average cost of capital be (as 1% (Round to Financial calculator Next O w P 8:48 PM 12/5/2021 2