You are the CFO of ABC Inc. Your firm wishes to acquire Andersons Furniture Outlet, which operates a line of business that is unrelated to the firms core business. Anderson is a publicly listed, levered company. Your subordinates have gathered the following information.

Anderson has the two bonds outstanding with information as follow.

Bond	Number of bonds outstanding	Face value	Coupon	YTM	Remaining Years to maturity
Serial A	0.5m	$1000	6.250% annual	6.00%	10
Serial B	0.5m	$1000	8.125% annual	7.25%	20

Anderson has one class of common stock outstanding with 200m shares outstanding, par value of $1 per share, market price of $10 per share, a P/E ratio of 10 and an equity beta of 1.25.

Anderson has no other liabilities other than the equity and bonds mentioned above. Andersons tax rate is 35%. The risk free rate is 4% and the expected return on the market portfolio is 10%.

1) Estimate Andersons cost of debt (Rb) that is appropriate for the WACC corporate valuation method. (20 points)

{Hint: Because there are two bonds outstanding Andersons cost of debt should be based on information of both. Use market value based information and the weighted average method.}

2) Estimate Andersons WACC that is appropriate for the WACC corporate valuation method. (24 points)

{Hint: Should use market value based information to obtain all returns and weights needed to operationalize the WACC equation.}

3) Estimate the Ro appropriate for corporate valuation using the APV method. (6 points)