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

question 33

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.What is the best estimate of the after-tax cost of debt?

• A)4.64%
• B)4.88%
• C)5.14%
• D)5.40%
• E)5.67%

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Definitions:

MyPlate

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USDA

United States Department of Agriculture, an agency overseeing food safety, agriculture, and related issues.

Healthful Meal

A meal that provides the necessary nutrients for good health, balancing proteins, fats, carbohydrates, vitamins, and minerals.

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An involuntary action of the body producing rapid muscle contractions to generate heat in response to cold.