ABC Manufacturing has 10,000 bonds outstanding with a 6% annual coupon rate, 8 years to maturity,...

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ABC Manufacturing has 10,000 bonds outstanding with a 6% annual coupon rate, 8 years to maturity, a $1,000 face value, and the current quote is 950 and the cost of debt (RD) is 5.45%. The company's 500,000 shares of common stock sell for $25 per share and have a beta of 1.5. The risk-free rate is 4%, and the market return is 12%. Assuming a 40% tax rate, what discount rate (WACC) should the firm apply to a new project's cash flows if the project has the same risk as the firm's typical project? ABC Manufacturing has 10,000 bonds outstanding with a 6% annual coupon rate, 8 years to maturity, a $1,000 face value, and the current quote is 950 and the cost of debt (RD) is 5.45%. The company's 500,000 shares of common stock sell for $25 per share and have a beta of 1.5. The risk-free rate is 4%, and the market return is 12%. Assuming a 40% tax rate, what discount rate (WACC) should the firm apply to a new project's cash flows if the project has the same risk as the firm's typical project?

Answer rating: 100% (QA)

To calculate the weight of debt WD in the firms capital structure you can use the following formu... View the full answer