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

question 60

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.What is the best estimate of the firm's WACC?

• A) 10.85%
• B) 11.19%
• C) 11.53%
• D) 11.88%
• E) 12.24%

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Definitions:

Overreliance

A situation where there is excessive dependence on a particular resource, tool, or strategy, often leading to vulnerability or failure when it is unavailable or ineffective.

Knowledge Base

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Qualitative Designs

Research methodologies that focus on gathering non-numerical data to understand concepts, perceptions, or experiences.

Quantitative Approaches

Research methods focusing on the collection and analysis of numerical data to understand patterns, relationships, and causality.