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Business, 25.03.2021 18:10 jasramos004

The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5.50%. The required return on the stock market is 11.50%, but the market has had an average annual return of 14.50% during the past 5 years. The firm's tax rate is 40%. Required:
a. What is the best estimate of the after-tax cost of debt (%)?
b. Based on the CAPM, what is the firm's cost of equity (%) ?
c. Calculate the weights of market value of debt and market value of equity for use in calculating the WACC based in market values?
d. Calculate ABC's WACC (%).

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