Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic gr

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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 fertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. AssetsCurrent assets$38,000,000Net plant, property, and equipment$101,000,000Total assets$139,000,000 Liabilities and EquityAccounts payable$10,000,000Accruals$9,000,000Current liabilities$19,000,000Long-term debt (40,000 bonds, $1,000 par value)$40,000,000Total liabilities$59,000,000Common stock (10,000,000 shares)$30,000,000Retained earnings$50,000,000Total shareholders' equity$80,000,000Total liabilities and shareholders' equity$139,000,000The stock is currently selling for $15.25 per share, and its noncallable $1,000.00 par value, 20-year, 9.00% bonds with semiannual payments are selling for $930.41. The beta is 1.22, 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 25%. What is the best estimate of the after-tax cost of debt?a. 3.80%b. 3.68%c. 9.80%d. 7.59%e. 7.35%
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 fertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. AssetsCurrent assets$38,000,000Net plant, property, and equipment$101,000,000Total assets$139,000,000 Liabilities and EquityAccounts payable$10,000,000Accruals$9,000,000Current liabilities$19,000,000Long-term debt (40,000 bonds, $1,000 par value)$40,000,000Total liabilities$59,000,000Common stock (10,000,000 shares)$30,000,000Retained earnings$50,000,000Total shareholders' equity$80,000,000Total liabilities and shareholders' equity$139,000,000The stock is currently selling for $15.25 per share, and its noncallable $1,000.00 par value, 20-year, 9.00% bonds with semiannual payments are selling for $930.41. The beta is 1.22, 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 25%. What is the best estimate of the after-tax cost of debt?a. 3.80%b. 3.68%c. 9.80%d. 7.59%e. 7.35%
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 fertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. AssetsCurrent assets$38,000,000Net plant, property, and equipment$101,000,000Total assets$139,000,000 Liabilities and EquityAccounts payable$10,000,000Accruals$9,000,000Current liabilities$19,000,000Long-term debt (40,000 bonds, $1,000 par value)$40,000,000Total liabilities$59,000,000Common stock (10,000,000 shares)$30,000,000Retained earnings$50,000,000Total shareholders' equity$80,000,000Total liabilities and shareholders' equity$139,000,000The stock is currently selling for $15.25 per share, and its noncallable $1,000.00 par value, 20-year, 9.00% bonds with semiannual payments are selling for $930.41. The beta is 1.22, 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 25%. What is the best estimate of the after-tax cost of debt?