The CAPM to estimate the cost of common stock

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Reference no: EM132073965

ABC Inc. recently is doing the following financing: (1) The firm's non-callable bonds mature in 20 years, have an 6.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 5%, the market return is 12%, and the stock’s beta is 1.20. (4) The target capital structure consists of half debt and half equity. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC? (12’)

Reference no: EM132073965

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