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

50.1K

Verified Solution

Question

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

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

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%