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ABC Corporation has $100 million in debt outstanding. The debt has 4 years to maturity and...

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Finance

ABC Corporation has $100 million in debt outstanding. The debthas 4 years to maturity and a 6% coupon. The debt has a par valueof $1,000 per bond and interest is paid semi-annually. The currentprice of the bond is 105.25 as a percent of par.

The company has 10 million of stock outstanding with a marketprice of $25 per share. The stock has a beta of 1.24 with themarket.  

The company is in the 25% tax bracket and the risk-free rate is4% with a 6% market risk premium.

What is the weighted average cost of capital (WACC) for ABCCorporation?

Group of answer choices

14.32%

5.12%

9.15%

12.82%

Answer & Explanation Solved by verified expert
3.7 Ratings (457 Votes)
Market value of equity E Number of shares stock price 10 million 25 250 million Market value of debt D Debt outstanding selling at of par 100 million 10525 10525 million Firms market value capital structure Market value of equity E Market value of debt    See Answer
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Transcribed Image Text

ABC Corporation has $100 million in debt outstanding. The debthas 4 years to maturity and a 6% coupon. The debt has a par valueof $1,000 per bond and interest is paid semi-annually. The currentprice of the bond is 105.25 as a percent of par.The company has 10 million of stock outstanding with a marketprice of $25 per share. The stock has a beta of 1.24 with themarket.  The company is in the 25% tax bracket and the risk-free rate is4% with a 6% market risk premium.What is the weighted average cost of capital (WACC) for ABCCorporation?Group of answer choices14.32%5.12%9.15%12.82%

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