Exhibit 9.1 The Collins Group, a Leading Producer of Custom Automobile Accessories

question 64

Multiple Choice

Exhibit 9.1
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.

The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, 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 9.1.Which of the following is the best estimate for the weight of debt for use in calculating the firm's WACC?

• A) 18.67%
• B) 19.60%
• C) 20.58%
• D) 21.61%
• E) 22.69%

Understand the implications of the permanent income hypothesis on savings behavior.

Understand the components and presentation of financial statements under IFRS and GAAP.

Calculate and interpret earnings per share for companies with common and preferred stock.

Understand the concept and implications of retained earnings restrictions.

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Definitions:

Palaces

Grand, opulent residences for royalty, nobility, or bishops, often showcasing elaborate architecture, expansive grounds, and rich decorations to signify wealth and power.

Cretan

Pertaining to Crete, its people, culture, or history, often associated with the ancient Minoan civilization.

Mycenaean

The prehistoric art of the Late Helladic period in Greece, named after the citadel of Mycenae.

Minoan Art

An artistic tradition from the ancient Minoan civilization on Crete, known for its vibrant frescoes, pottery, and sculptures that reflect a society rich in maritime culture and mythology.