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 fertilizers, to estimate the firm's weighted
average cost of capital. The balance sheet and some other
information are provided below.
Assets
Current assets | $38,000,000 |
Net plant, property, and equipment | $101,000,000 |
Total assets | $139,000,000 |
Liabilities and Equity
Accounts payable | $10,000,000 |
Accruals | $9,000,000 |
Current liabilities | $19,000,000 |
Long-term debt (40,000 bonds, $1,000 par value) | $40,000,000 |
Total liabilities | $59,000,000 |
Common stock (10,000,000 shares) | $30,000,000 |
Retained earnings | $50,000,000 |
Total shareholders' equity | $80,000,000 |
Total liabilities and shareholders' equity | $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? Do not
round your intermediate calculations.
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Weight of Debt=Number of bonds*Price per bond/(Number of bonds*Price per bond+Number of shares*Price per share)=(881*40000)/(881*40000+17.75*10000000)=16.56%
Exhibit 10.1 Assume that you have been hired as a consultant by CGT, a major producer...
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 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 $38,000,000 $101,000,000 $139,000,000 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...
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 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 $38,000,000 $101,000,000 $139,000,000 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...
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. Assets Current assets $38,000,000 Net plant, property, and equipment $101,000,000 Total assets $139,000,000 Liabilities and Equity Accounts payable $10,000,000 Accruals $9,000,000 Current liabilities $19,000,000 Long-term debt (40,000 bonds, $1,000 par value) $40,000,000 Total liabilities $59,000,000...
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 $139,000,000Liabilities 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...
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Collins Group The Collins Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets $ 38,000,000 Net plant, property, and equipment 101,000,000 Total assets $139,000,000 Liabilities and Equity Accounts payable $ 10,000,000 Accruals 9,000,000 Current liabilities $ 19,000,000 Long-term debt (40,000 bonds, $1,000 par value) 40,000,000 Total liabilities $ 59,000,000 Common stock (10,000,000 shares) 30,000,000 Retained earnings...
Collins Group The Collins Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets $ 38,000,000 Net plant, property, and equipment 101,000,000 Total assets $139,000,000 Liabilities and Equity Accounts payable $ 10,000,000 Accruals 9,000,000 Current liabilities $ 19,000,000 Long-term debt (40,000 bonds, $1,000 par value) 40,000,000 Total liabilities $ 59,000,000 Common stock (10,000,000 shares) 30,000,000 Retained earnings 50,000,000 Total shareholders' equity...
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