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%

Master the ability to allocate and interpret common fixed expenses across divisions.

Understand the significance of fixed and variable expenses in cost-volume-profit analysis.

Understand the concept of break-even analysis in business.

Calculate unit product cost using both absorption costing and variable costing methods.

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Definitions:

Creditor Beneficiaries

Individuals or entities that benefit from a contract made between two other parties, particularly in their capacity to receive a debt payment.

Donee Beneficiaries

Third-party beneficiaries for whom a contract is made to benefit as a gift, giving them the right to enforce the contract against the promisor.

Assigned Donees

Individuals or entities designated to receive specific gifts or donations.

Donee Beneficiary

In contract law, a third party who benefits from a contract between two other parties, particularly when the benefit was intended as a gift.