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

question 89

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.
Assets
​
Liabilities and Equity
The stock is currently selling for $15.25 per share,and its noncallable $1,000.00 par value,20-year,9.00% bonds with semiannual payments are selling for $930.41.The beta is 1.22,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 Exhibit 10.1.Which of the following is the best estimate for the weight of debt for use in calculating the WACC? Do not round your intermediate calculations.

• A) 19.62%
• B) 20.40%
• C) 21.22%
• D) 21.85%
• E) 22.51%

---

Definitions:

Social Realism

An art movement that focuses on depicting social and political conditions realistically, as in the lives of everyday people, often with a critique of the status quo.

Sociology

The study of social behavior, societies, patterns of social relationships, social interaction, and culture that surrounds everyday life.

Material Social Facts

Elements of society that have a physical or material existence, used by Durkheim to describe the objectivity of social phenomena.

Empirically Studied

Investigated or analyzed through observation or experience rather than theory or pure logic.