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How will the decision affect the value of the company

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Reference no: EM132578908

You are given the following information for ABC Financial:

Long-term debt outstanding £200,000

Current yield to maturity (rdebt) 7%

Number of shares of common stock 15,000

Price per share £40

Book value per share £20

Expected rate of return on stock (requity) 15%

Question a) Calculate ABC's company cost of capital.

Question b) If the tax rate is 35%, what is the after-tax weighted average cost of capital for the company?

Question c) Suppose the company want to issue £120,000 more debt to buy back the stocks, how will this decision affect the value of the company?

Reference no: EM132578908

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