Question: Please solve all questions with full work and explanation ABC Company has a long-term debt of 160 million and the book value of shareholders' equity

Please solve all questions with full work and explanation ABC Company

Please solve all questions with full work and explanation

ABC Company has a long-term debt of 160 million and the book value of shareholders' equity of 200 million. The debt has been financed at an annual interest rate of 6%. The estimated beta of the stock is currently 1.2 and the market expected annual return is 10%. The annual Treasury bill rate is 4%. There are 6 million shares outstanding and the share is currently selling for 45. The tax rate is 30% (Rounding to two decimal places). Required: 1i. What is the weighted average cost of capital (WACC) of ABC? ii. If ABC increases its long-term debt to 200 million, it uses the additional debt to repurchase shares. Assume the company's borrowing rates are unchanged, how much additional value is added for ABC shareholders and what is the new WACC of ABC? 2.Discuss the advantages and disadvantages of debt financing and equity financing from a company's point of view (500 words limit)

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