1. The total market value of ABC stocks is $6.000.000 and the total market value of...

 

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1. The total market value of ABC stocks is $6.000.000 and the total market value of its riskfree debt is $4.000.000. The financial analyst estimates the beta of the stocks at 1.5 and the market premium at 10% for a risk-free rate of 8%. a. Evaluate the expected return (cost of equity) of the ABC stocks. b. If the company has a beta equal to 0.9, estimate the cost of capital of the company. c. Suppose that ABC pays back $3.000.000 of its debt and replace them by preferred shares with a beta of 1.2. The new beta of the company becomes then equal to 1.26. What is the new weighted average cost of capital? 1. The total market value of ABC stocks is $6.000.000 and the total market value of its riskfree debt is $4.000.000. The financial analyst estimates the beta of the stocks at 1.5 and the market premium at 10% for a risk-free rate of 8%. a. Evaluate the expected return (cost of equity) of the ABC stocks. b. If the company has a beta equal to 0.9, estimate the cost of capital of the company. c. Suppose that ABC pays back $3.000.000 of its debt and replace them by preferred shares with a beta of 1.2. The new beta of the company becomes then equal to 1.26. What is the new weighted average cost of capital?