Question: ABC Inc. has a the capital structure shown below. Liabilities $106,967,764 Stockholders' Equity $97,056,449 ABC Inc. will raise additional capital for new projects this year,

ABC Inc. has a the capital structure shown below.

Liabilities	$106,967,764
Stockholders' Equity	$97,056,449

ABC Inc. will raise additional capital for new projects this year, in the amount of $44,832,098.

The firm believes, however, that a capital structure with 56.1% of debt is ideal and will seek to implement that change when they raise capital.

Currently, the firm has a beta of 1.8. The risk-free rate is at 2.8%, and the market risk premium is currently 7%.

The company will issue bonds with a par value of $1,000. The bonds will sold with coupon payments of $40, each paid on a semi-annual basis. They will be sold at par and have a maturity of 12.

ABC Inc. expects to pay 5% on their state taxes, and 26% on their federal taxes.

What should the firm estimate as its new weighted average cost of capital?

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