ABC Inc. has market firm value of $300,000. It has 10,000 shares and $120,000 of 4.5%...

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ABC Inc. has market firm value of $300,000. It has 10,000 shares and $120,000 of 4.5% perpetual debt that is selling at 90% of par. ABC's EBIT is $36,000 per year forever, and its tax rate is 30%. a) Calculate ABC's cost of equity, stock price, and WACC. b) Assume ABC announces that it will issue $160,000 additional perpetual debt to buy back equity. Calculate ABC's firm value, cost of equity, WACC, and stock price under the new capital structure. c) Assume ABC announces that it will issue additional perpetual debt to buy back 50% of the equity. Calculate ABC's firm value, cost of equity, WACC, and stock price under the new capital structure. ABC Inc. has market firm value of $300,000. It has 10,000 shares and $120,000 of 4.5% perpetual debt that is selling at 90% of par. ABC's EBIT is $36,000 per year forever, and its tax rate is 30%. a) Calculate ABC's cost of equity, stock price, and WACC. b) Assume ABC announces that it will issue $160,000 additional perpetual debt to buy back equity. Calculate ABC's firm value, cost of equity, WACC, and stock price under the new capital structure. c) Assume ABC announces that it will issue additional perpetual debt to buy back 50% of the equity. Calculate ABC's firm value, cost of equity, WACC, and stock price under the new capital structure.

Answer rating: 100% (QA)

a Calculate ABCs cost of equity stock price and WACC Cost of Equity The cost of equity is the return required by equity investors It is calculated as follows Cost of Equity Net Income Interest Expense ... View the full answer