Question: please let me know when you've finished WACC: Use the information below to answer Questions 6 to 10 Abbot industries makes scanners for airport security


please let me know when you've finished


WACC: Use the information below to answer Questions 6 to 10 Abbot industries makes scanners for airport security systems. They want to ramp up production and want to buy a new factory. To evaluate the new factory project, Abbot industries needs to estimate its cost of capital. Debt Number of bonds outstanding = 100,000 Face value = $1,000 Maturity = 5 years Coupons = None Market Price = 84% of par Tax rate = 35% Equity Book Value = $32 Market Price = $30 Shares Outstanding = 8M Beta = 1.4 Risk Free Rate = 3% _ Expected Return on Market = 8% Latest dividend issued _ (yesterday)= $1 Expected dividend gowth rate= 5% Preferred shares Book Value = $22 Market Price = $20 Shares Outstanding = 2M Stated dividend per share $1.5 Risk Free Rate = 3% Expected Return on Market = 8% 6. What is the after-tax cost of debt for Abbot industries" bonds? A) 4.0% B) 3.6% C) 3.24% D) 2.31% E) 1.59% 7. According to the CAPM, what is the required return of Abbot industries' shareholders? A) 3.0% B) 8.4% C) 9.6% D) 10.0% E} 10.4% 8. According to the Constant Growth Model, what is the required return of Abbot industries' shareholders? A) 7.5% B) 7.8% C) 8.5% D) 8.9% E) 9.4% 9. What is the cost of preferred stock for Abbot industries' preferred shareholders? A) 6.5% B) 6.8% C) 7.5% D) 8.0% E) 8.2% 10. Suppose that the after tax cost of debt is 6%, the cost of preferred equity is 7% and the cost of equity is 8%. What is the WACC for Abbot industries? A) 6.2% B) 7.43% C) 7.9% D) 8.5% E) 9.2%
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
