Problem 1 (Total 15 points): ABC, Inc. is an MNC located in the U.S. ABC. would like to estimate its weighted average cost of capital. On average, bonds issued by ABC yield 6 percent. Currently, T-bond rates are 4 percent. Furthermore, ABCs stock typically moves in the same direction and by the same degree as the U.S. stock market, and the return on the S&P 5000 stock index is expected to be 12 percent. ABC most recent stock price is $10 per share and it has 100,000 common shares outstanding. The market value of its debt is estimated to be $2,000,000. ABC Inc. is in the 40 percent tax bracket.

A) Calculate its cost of debt (3 points)

B) Calculate its cost of equity (6 points)

C) Calculate its weighted average cost of capital. (6 points)