ABC’s CFO is considering whether to take on a new project

ABC’s CFO is considering whether to take on a new project

Question
	ABC’s CFO is considering whether to take on a new project that has average risk. He collected the following information:

•	The company has bonds outstanding that mature in 26 years with an annual coupon of 7.5 percent. The bonds have a face value of $1,000 and sell in the market today for $920. There are 10,000 bonds outstanding.
•	The risk-free rate is 6 percent.
•	The market risk premium is 5 percent.
•	The stock’s beta is 1.2.
•	The company’s tax rate is 40 percent.
•	The company has 50,000 shares of preferred stock with a par value of $100. These shares are currently trading at $105 and pay an annual dividend of $5.40.
•	The company also has 1,850,000 common shares trading at $25. These shares last paid an annual dividend of $0.93.

1.	What is ABS’c after-tax cost of debt?

2.	What is ABC’s cost of preferred equity?

3.	What is ABC’s Wd?