ABC Incorporated shares are currently trading for $32 per share. The firm has 1.13 billion shares outstanding. The market value of the firm’s debt is $2 billion. The 10-year Treasury bond rate is 6.25%. ABC as an outstanding credit rating and has earned a AAA rating from the major credit rating agencies: the current yield on AAA bonds is 6.45%. The historical equity market risk premium is 5.5%. ABC’s equity beta is estimated to be 1.1, and its marginal tax rate (including federal, state, local, and international taxes) is 40%.
a. What is ABC’s cost of equity?
b. What is ABC’s after-tax cost of debt?
c. What is ABC’s WACC?