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What is ABCs after-tax WACC

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Question - ABC Corporation has 12 million shares outstanding, now trading at £65 per share. The firm has estimated the expected rate of return to shareholders at about 15%. It has also issued 5-year bonds of 400 million at an interest rate of 8%. It pays tax at a marginal rate of 35%.

Requirements -

Q1. What is ABC's after-tax WACC?

Q2. Compute the present value of interest tax shields generated by the 5-year bonds

Q3. A customer has ordered goods from ABC generating a present value of £4,500. The present value of production costs is £3,000. Assuming there is no possibility of repeat orders, what is the minimum level of P (probability that the customer will pay up) at which ABC is justified in extending credit?

Q4. How is Modigliani-Miller's Proposition I modified when taxes and financial distress costs are considered?

Reference no: EM132543511

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