5. ABC is a digital camera manufacturer. It has just paid a dividend of $0.77 per...

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5. ABC is a digital camera manufacturer. It has just paid a dividend of $0.77 per share, has 700,000 shares outstanding, and share price of $9.2. The company is expected to increase payout by 6.46% per year, indefinitely. The company has 8,000 zero coupon bonds outstanding, with a price of $469.2, 7 years to maturity. The company has no other debt outstanding. The risk-free rate is 2.4% and the market risk premium is 6.9%. Corporate tax rate is 35%. (a) Calculate ABC's cost of equity. (b) Name two disadvantages of the approach that you use in part (a). (c) Calculate the weighted average cost of capital (WACC) of ABC. (d) Describe two features of preferred stock. 8 (2 marks) (3 marks) (7 marks) (4 marks) 5. ABC is a digital camera manufacturer. It has just paid a dividend of $0.77 per share, has 700,000 shares outstanding, and share price of $9.2. The company is expected to increase payout by 6.46% per year, indefinitely. The company has 8,000 zero coupon bonds outstanding, with a price of $469.2, 7 years to maturity. The company has no other debt outstanding. The risk-free rate is 2.4% and the market risk premium is 6.9%. Corporate tax rate is 35%. (a) Calculate ABC's cost of equity. (b) Name two disadvantages of the approach that you use in part (a). (c) Calculate the weighted average cost of capital (WACC) of ABC. (d) Describe two features of preferred stock. 8 (2 marks) (3 marks) (7 marks) (4 marks)

Answer rating: 100% (QA)

Lets begin by addressing each part of the question a Calculate ABCs cost of equity The cost of equity can be estimated using the Gordon Growth Model Dividend Discount Model if dividends are expected t... View the full answer