Assume newly formed corporation ABC needs to raise $2 million in capital so it can...
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Accounting
Assume newly formed corporation ABC needs to raise $2 million in capital so it can buy office buildings and the equipment needed to conduct its business. The company issues and sells 10,000 shares of stock at $100 each to raise the first $1,000,000. Because shareholders expect a return of 8% on their investment, the cost of equity is 8%. Corporation ABC then sells 1,000 bonds for $1,000 each to raise the other $1,000,000 in capital. The people who bought those bonds expect a 4.5% return, so ABCs cost pf debt is 4.5%. Corporation ABCs total market value is now ($1,000,000 equity + $1,000,000 debt) = $2 million. What is the Corporation ABCs weighted average cost of capital (WACC)?
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