ABC Ltd$.$ is in both computer hardware and software business, with $75\%$ in hardware and

$25\%$ in software business. It has a $35\%$ tax rate and the following capital structure. To

strengthen its software business, ABC is considering a capital project to acquire a software

only company that has a WACC of $12\%.$

$($a$)$ Calculate the WACC for ABC

$($b$)$ Should ABC plans to use its WACC to evaluate the capital project above? Why or why

not?

Long$-$term Bonds

Preferred Shares

Common Shares

Book Value

$19,500,000$

$8,000,000$

$6,500,000$

Coupon$/$Preferred dividend Rate

$5\%$

$5\%$

N$/$A

Market Value

$20,000,000$

$10,000,000$

$50,000,000$

Market Rate of Return

$6\%$

$8\%$

$12\%$

What would likely be the implications to ABC$$s WACC if ABC decided to issue $$40,000,000$ long$-$term bonds at market rate?