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Given the following information about ABC corporation:
Book Value Security Amount ($ millions)
Common Stock 10
Preferred Stock 5
Bonds 5
Retained Earnings 2
Total 22
The common stock is currently trading at $10/share and there are 1 million shares outstanding. The firm has a Beta of 1.2, the economy's risk-free rate is 2% and the equity market premium is 4%. ABC's preferred stock is trading at $12/share and there are also 1 million shares outstanding. The par value of the preferred stock is $5 and it has a dividend yield of 20%. A series of 5,000 bonds were issued with a face value of $1,000. These bonds are now currently selling at $960 each. The bonds have a 10-year maturity and a coupon rate of 10% paid semi-annually. The firm's corporate tax rate is 30%.
Problem 1: What is the firm's WACC?
The accountant made entries to record the transactions on October 1 and the adjustments on October 31. How was Net Income in October affected by these entries
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