Question 2: ABC Incorporated shares are currently trading for $32 per share. The firm has...
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Question 2: ABC Incorporated shares are currently trading for $32 per share. The firm has 1.13 billion shares outstanding. In addition, the market value of the firms outstanding debt is $2 billion. The 10-year Treasury bond rate is 6.25%. ABC has an outstanding credit record and has earned an AAA rating from the major credit rating agencies. The current interest rate on AAA corporate bonds is 6.45%. The historical risk premium for stocks over the risk-free rate of return is 5.5 percentage points. The firms beta is estimated to be 1.1 and its marginal tax rate, including federal, state, and local taxes is 40%. a. What is the cost of equity? b. What is the after-tax cost of debt? c. What is the cost of capital?
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