Abc inc operates in a country whose risk-free rate is 425, Financial Management

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Abc inc operates in a country whose risk-free rate is 425

ABC, inc. operates in a country whose risk-free rate is 4.25%. The expected return of the market in the country is 12.10% and the company has a beta of 1.12. The company has a bank loan with an interest rate of 8.5%. The company’s corporate tax rate is 35% and its optimal capital structure is 75% debt and 25% equity.

A) What is firm’s cost of equity?

B) What is the firm’s WACC?

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Financial Management: Abc inc operates in a country whose risk-free rate is 425

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