Calculate abc cost of equity

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-The ABC wants to purchase a new asset costing $10 million. Their market value capital structure, shown below, is considered to be optimal (assume there is no short-term debt): Long-term Debt = $12,600,000, Common Equity = $18,900,000, and Total Capital =$31,500,000. Leo expects its earnings (and its dividends) to continue to grow at their historical rate of 5% per year for the indefinite future. The current risk-free rate is 7.8% and the expected return on the S&P 500 Index is 16.25%. Leo's appropriate levered equity beta is 0.80. Their bonds are currently trading at $1000 per bond, have a par value of $1000, an annual coupon rate of 12%, and a term to maturity of 12 years. Thus, the YTM on this bond is consistent with the current Debt Risk Premium between the S&P 500 Composite and long-term, high-grade bonds of 4.2%. The firm's tax rate is 34%.

-Calculate ABC's cost of equity

-Calculate ABC's cost of debt

-Calculate ABC's weighted average cost of capital (WACC).

Reference no: EM133110573

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