ABC Company has a target Debt Ratio of 60%. ABC has a debt issue outstanding that is currently trading at 105% of its p

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ABC Company has a target Debt Ratio of 60%. ABC has a debt
issue outstanding that is currently trading at 105% of its par
value of $1,000. The outstanding issue pays annual interest
payments, has a coupon rate of 8.2%, and 7 years remaining until
maturity; new debt with a 30-year original maturity will incur an
5% flotation cost. Further, ABC's common stock trades
currently at a price of $36.45 and the market expects ABC to pay a
dividend in one year of $3.80 (ABC just paid a dividend of $3.42,
and this growth rate is expected to continue); ABC pays out all net
income as dividends; and new equity will incur a 12% flotation
cost. ABC’s tax rate is 32%.
h. What is ABC’s WACC with
external equity?
ABC (from above) is currently evaluating two mutually exclusive
projects. Project A has a time 0 equipment cost of $280,000
and is expected to return cash flows of $75,000 per year for the
next 14 years. Project B has a time 0 equipment cost of
$1,056,000 and is expected to return cash flows of $245,000 per
year for the next 14 years.