Question: ABC Inc. has a the capital structure shown below: Liabilities $117,966,544 Stockholders' Equity $98,322,312 ABC Inc. will raise additional capital for new projects this year,

ABC Inc. has a the capital structure shown below:

Liabilities $117,966,544

Stockholders' Equity $98,322,312

ABC Inc. will raise additional capital for new projects this year, in the amount of $41,559,430

The firm believes, however, that a capital structure with 57.1% debt it is ideal and will seek to implement that change when they raise capital.

Currently, the firm has a beta of 0.9. The risk-free rate is at 3.6% and the market risk premium is currently 7%.

The company will issue bonds with a par value of $1000. The bonds will sold with coupon payments of $40, each paid on a semiannual basis. They will be sold at par and have a maturity of 10.

ABC Inc. expects to pay 4% on their state taxes, and 17% on their federal taxes.

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

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