Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery Bgs, styl fertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets Net plant, property, and equipment Total assets Liabilities and Equity Accounts payable Accruals Current liabilities Long-term debt (40,000 bonds, $1,000 par value) Total liabilities Common stock (10,000,000 shares) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $38,000,000 $101.000.000 $139.000.000 $10,000,000 $9.000.000 $19,000,000 $40.000.000 $59.000.000 $30,000,000 $50.000.000 $80.000.000 $139.000.000 The stock is currently selling for $17.75 per share, and its noncallable $3.319.97 par value, 20-year, 1.70% bonds with semiannual payments are selling for $881.00. The beta is 1.29, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5-50%. The required return on the stock market is 11.50%, but the market has had an average annual return of 14-50% during the past 5 years. The firm's tax rate is 40%. Refer to Exhibit 10.1. Which of the following is the best estimate for the weight of debt for use in calculating the WACC? Oa 17.23% Ob 15.64% Oc 17.92% d. 16.56% O17,57%
Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery Bgs, styl fertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets Net plant, property, and equipment Total assets Liabilities and Equity Accounts payable Accruals Current liabilities Long-term debt (40,000 bonds, $1,000 par value) Total liabilities Common stock (10,000,000 shares) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $38,000,000 $101.000.000 $139.000.000 $10,000,000 $9.000.000 $19,000,000 $40.000.000 $59.000.000 $30,000,000 $50.000.000 $80.000.000 $139.000.000 The stock is currently selling for $17.75 per share, and its noncallable $3.319.97 par value, 20-year, 1.70% bonds with semiannual payments are selling for $881.00. The beta is 1.29, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5-50%. The required return on the stock market is 11.50%, but the market has had an average annual return of 14-50% during the past 5 years. The firm's tax rate is 40%. Refer to Exhibit 10.1. Which of the following is the best estimate for the weight of debt for use in calculating the WACC? Oa 17.23% Ob 15.64% Oc 17.92% d. 16.56% O17,57%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:MINDTAP
ulz
Exhibit 10.1
Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and
Ofertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below.
Assets
0000
Current assets
Net plant, property, and equipment
Total assets
Liabilities and Equity
O Accounts payable
Accruals
Current liabilities
Long-term debt (40,000 bonds, $1,000 par value)
Total liabilities
Common stock (10,000,000 shares)
Retained earnings
Total shareholders' equity
Total liabilities and shareholders equity
$38,000,000
$101.000.000
$139.000.000
$10,000,000
$9.000.000
$19,000,000
$40.000.000
$59.000.000
$30,000,000
$50.000.000
$80,000,000
$139.000.000
The stock is currently selling for $17.75 per share, and its noncallable $3.319.97 par value, 20-year, 1.70% bonds with semiannual payments are selling for
$881.00. The beta is 1.29, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5-50%. The required return on the stock
market is 11.50%, but the market has had an average annual return of 14-50% during the past 5 years. The firm's tax rate is 40%.
Refer to Exhibit 10.1. Which of the following is the best estimate for the weight of debt for use in calculating the WACC?
a. 17.23%
Ob 15.64%
Oc17.92%
Od 16.56%
17,57%
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