1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
DaniilM [7]
3 years ago
14

Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery ba

gs, styrofoam cups, and fertilizers, to estimate the firm's weighted average cost of capital. CGT's balance sheet data are as follows.
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%. Determine the best estimate of the after-tax cost of debt.
Assets 2018
Current assets $38,000,000
Net plant, property, and equipment $101,000,000
Total assets $139,000,000
Liabilities & Equity
Accounts payable $10,000,000
Accruals $9,000,000
Current liabilities $19,000,000
Long-term debt (40,000 bonds.
$1,000 par value) $40,000,000
Total liabilities $59,000,000
Common stock (10,000,000 shares) $30,000,000
Retained earnings $50,000,000
Total shareholders' equity $80,000,000
Total liabilities and shareholders' equity $139,000,000
a. 5.40%.
b. 5.67%.
c. 4.64%.
d. 5.14%.
Business
1 answer:
koban [17]3 years ago
8 0

Answer:

d. 5.14%.

Explanation:

Calculation to determine the best estimate of the after-tax cost of debt.

First step

Based on the information given we would make use of rate formula in excel.

=rate(nper,pmt,-pv,fv)

Where,

nper= coupon every six months for 20 years = 40 coupon payments

Pmt =$1000*7.25%*6/12=$36.25

Pv = $875

Fv =$1000

Let plug in the formula

=rate(40,36.25,-875,1000)=4.28% semiannually

=4.28% *2=8.56% annually

Now let calculate the after tax cost of debt using this formula

After tax cost of debt=8.56%*(1-t)

Where,

t represent tax rate of 40%

Let plug in the formula

After tax cost of debt=8.56%*(1-0.4)

After tax cost of debt=5.14%

Therefore the best estimate of the after-tax cost of debt is 5.14%

You might be interested in
48. What is the economic process or activity of producing goods and
fgiga [73]

Answer:

O C. Production

Explanation:

Production is the organized activity of combining different materials (inputs) to make consumable goods and services. It is the process of converting resources to finished products and services for sale. Production occurs to meet the demand for the goods and services in the market.

Entrepreneurship involves the generation of an idea and transforming it into a profitable business. Factors of production are the inputs necessary for making goods and services. These factors of production (inputs) are the ingredients in the production process.

7 0
3 years ago
What is an example of an interest leading to a career choice
kramer

Answer:

Making music leading to becoming a musician, basketball leading to wanting to be in the nba, etc.

Explanation:

8 0
3 years ago
Laura borrowed $48,000 at a 6% interest rate for 7 years. what was the total interest?
Mrrafil [7]
Principal Amount P = $ 48000 
Rate of interest r = 6% = 0.06 
Time interval t = 7 
Formula for Interest I = P x r x t => I = 48000 x 0.06 x 7 => I = 2880 x 7 
Total Interest for seven years would be $20,160
7 0
3 years ago
When a firm decides to use skilled professionals to produce its​ output, what question is the firm​ answering? When a firm decid
Stella [2.4K]

Answer:

The correct answers are "How?"; "What?"; and "Who?" respectively.

Explanation:

To begin with, in the economics science there is a big importance that the professionals of the area give to answering the questions mentioned before. Those questions are: "What to produce?"; "How to produce it?" and "To who we produce it to?". And the importance in that resides in the fact that the economy itself as a whole and therefore the companies and small producers among them need to understand what are they going to produce for the economy, to who they will sell it to and how will the produce it.

In conclusion, when the firm decides to use skilled professionals to produce its output they are answering the question of "How?". When the firm decides to produce organic fruit rather than non dash organic fruit, then they are answering the question of "What?". And the when the firm finds out who gets the goods and services that are produced, they are answering the question of "Who?".  

7 0
3 years ago
10. Calculate the closing percentage of the face value for a $3,000 bond with a closing price of $3,165.
erma4kov [3.2K]

Answer:

A 105.5%,

Explanation:

6 0
3 years ago
Other questions:
  • A consumer values a car at $525,000 and a producer values the same car at $485,000. If the transaction is completed at $510,000,
    5·1 answer
  • EB10.
    12·1 answer
  • Why do economists generally favor deregulation of most industries?
    12·1 answer
  • __________ is the process by which representatives of a union meet with representatives of management to negotiate a contract fo
    14·1 answer
  • Interest-on-Interest Consider a $1,500 deposit earning 4 percent interest per year for 7 years. How much total interest is earne
    8·1 answer
  • In an organizational setting, a _____ is a small number of people with complementary skills who work together for a common purpo
    13·1 answer
  • A corporation is:_________
    14·2 answers
  • Distinguish between the direct and indirect strategies. when is each appropriate.
    11·1 answer
  • When workers are not motivated to achieve organizational goals, the fault is often with the workers themselves. true false?
    13·1 answer
  • A business should have separate accounts for recording revenue and expenses
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!