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Estimate the weighted average cost of capital

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PROBLEM - Estimating Cost of Capital - ABC has $2.66 billion in total debt. Interest expense for the year was about $170 million. The company's market capitalization is approximately $3.7 billion, its market beta is 2.4, and its assumed tax rate is 21%. Assume that the risk-free rate equals 2.1% and the market premium equals 6%.

a) Estimate the company's cost of debt capital.

b) What does the beta of 2.4 mean regarding the volatility of the company's stock price?

c) Estimate the cost of equity capital.

d) Estimate the weighted average cost of capital.

Reference no: EM132974230

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