Question

The following financial statement data pertains to ABC Company (dollar amounts in millions):
Total Assets ......... $145,782
Interest-Bearing Debt ...... $32,659
Average Pre-tax borrowing cost... 8.25%
Common Equity:
Book Value ........ $22,515
Market Value ........ $65,843
Income Tax Rate ........ 40%
Market Equity Beta ....... 0.85
Market Premium ........ 7.5%
Risk-free interest rate ....... 2.2%

Required:
a. Calculate the company's cost of equity capital using CAPM.
b. Calculate the weight on debt capital that should be used to determine ABC’s weighted-average cost of capital.
c. Calculate the weight on equity capital that should be used to determine ABC’s weighted-average cost of capital.
d. Calculate ABC’s weighted-average cost of capital.



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  • CreatedAugust 26, 2013
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