Exhibit 10.1 Assume That You Have Been Hired as a Consultant by Consultant

question 5

Multiple Choice

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.
​
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 10.1.Which of the following is the best estimate for the weight of debt for use in calculating the WACC?

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

---

Definitions:

Agreement

A mutual understanding or arrangement between two or more parties, typically involving a contract or commitment.

Altered

Changed in form or character, typically in a way that improves or modifies the original.

Married Women

Refers specifically to the legal and social status of women who are in a marital relationship, which can impact rights, responsibilities, and financial considerations under various laws.

Contracts

Legally binding agreements between two or more parties that outline obligations, rights, and duties that each party must fulfill.