Collins Group
the Collins Group, a Leading Producer of Custom

question 87

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 betais 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 retum of $14.50 \%$ during the past 5 years. The firm's tax rate is $25 \%$ .
-Refer to the data for the Collins Group.What is the best estimate of the after-tax cost of debt?

• A) 5.80%
• B) 6.10%
• C) 6.43%
• D) 6.75%
• E) 7.08%

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Definitions:

Payroll Data

Information related to employees' salaries, wages, bonuses, and deductions, essential for processing payroll and ensuring accurate financial records.

Gross Earnings

The total income earned by an individual or business before any deductions like taxes or expenses are subtracted.

Sales Taxes Payable

Liabilities for sales taxes collected from customers on behalf of governmental authorities, which are to be remitted to those authorities.

Cash Register

A mechanical or electronic device for registering and calculating transactions, often equipped with a cash drawer.