answer 3b

ABC is now considering changing the debt ratio and moving it to the new debt/assets ratio as indicated below, and replacing all preferred stocks with debt. The money raised would be used to repurchase preferred stock at the current price. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, (a) By how much would the wace change, 1.e., what is wasserish - Bassan (WACC (in question (1) or (2)) - WACC (in question (3)) ? New Debt/Assets 658 Interest rate new = 24 6.0% New Equity/Assets 358 New cost of equity Eur 13.08 (b) Based on the Hamada equation, what would the firm's beta be if it used no debt, 1.e., what is its unlevered beta? ABC Inc.'s capital structure is 40% debt, 256 preferred, and 35% common equity, and its tax rate is 35%. For financing, (a) ABC sold a non- callable bond several years ago that now has 15 years to maturity with 89 annual coupon, paid semiannually, at a price of $1,065, and a par value of $1,000. (b) ABC sold a perpetual preferred stock for $95.50 per share, with a $7.50 annual dividend and a flotation cost of 3.000 of the price. (c) ABC also has beta = 1.2, risk free rate of return bu - 6.001; market, risk premium RP- 7.005