ABC Company has a target Debt Ratio of 45%. ABC has a debt issue outstanding that is

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Question:

ABC Company has a target Debt Ratio of 45%. ABC has a debt issue outstanding that is
currently trading at 96.75% of its par value of $1,000. The outstanding issue pays annual
interest payments, has a coupon rate of 9.20%, and 10 years remaining until maturity; new
debt with a 30-year original maturity will incur an 3% flotation cost. Further, ABC's
common stock trades currently at a price of $46.50 and the market expects ABC to pay a
dividend in one year of $3.80 (ABC just paid a dividend of $3.42, and this growth rate is
expected to continue); ABC pays out all net income as dividends; and new equity will
incur a 6% flotation cost. ABC’s tax rate is 36%.
a. What is the YTM on ABC’s existing debt?
b. What is ABC's before tax cost of debt?
c. What is ABC's after-tax cost of debt?
d. What is ABC’s expected future growth rate?
e. What is ABC's cost of internal equity?
f. What is ABC’s cost of external equity?

g. What is ABC's WACC with internal equity?
h. What is ABC’s WACC with external equity?