Collins Group
the Collins Group, a Leading Producer of Custom

question 23

Multiple Choice

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 bal ance sheet and some other in formation are provided below.
$\begin{array}{lr}\text { Assets } \\\text { Current assets } & \$ 38,000,000 \\\text { Net plant, property, and equipment } & 101,000,000 \\\text { Total assets } & \$ 139,000,000\\\\\text { Liabilities and Equity }\\\text { Accounts payable } & \$ 10,000,000 \\\text { Accruals } & 9,000,000 \\\text { Current liabilities } & \$ 19,000,000 \\\text { Long-term debt ( } 40,000 \text { bonds, } \$ 1,000 \text { par value) } & 40,000,000 \\\text { Total liabilities } & \$ 59,000,000 \\\text { Common stock (10,000,000 shares) } & 30,000,000 \\\text { Retained earnings } & 50,000,000 \\\text { Total shareholders' equity } & \$ 0,000,000 \\\text { Total liabilities and shareholders' equity } & \$ 139,000,000\end{array}$
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 25%.
-Refer to the data for the Collins Group.Based on the CAPM, what is the firm's cost of common stock?

• A) 11.15%
• B) 11.73%
• C) 12.35%
• D) 13.00%
• E) 13.65%

Grasp the concept of computing average inventory over specific periods.

Understand the impact of purchasing decisions on inventory valuation.

Understand the concept of inventory turnover and how it impacts business operations.

Calculate inventory turnover using beginning inventory, purchases, and ending inventory values.

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Definitions:

FOB Shipping Point

A term used in shipping agreements indicating that the buyer is responsible for the goods and the cost of shipping as soon as the goods leave the seller's premises.

Goods In Transit

Items being transported from one location to another, which have not yet reached the recipient or destination point.

Purchaser's Inventory

Goods and materials that a business holds for the ultimate goal of resale.

LIFO Conformity Rule

A tax regulation requiring companies that use the Last In, First Out (LIFO) method for tax reporting to also use it for financial reporting.