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.
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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%

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Definitions:

Autonomic Nervous System

A part of the peripheral nervous system that controls involuntary bodily functions, including heart rate, digestion, and respiratory rate.

Medulla

A section of the brainstem involved in autonomic functions such as breathing, heart rate, and blood pressure.

Achievement Motivation

The drive to pursue and meet (usually high) standards of accomplishment and the desire to undertake success-oriented activities.

Intermediate Difficulty

Refers to tasks or challenges that are of a moderate level of complexity, neither too easy to solve without effort nor too difficult to be solved at all.