23 Jul WHICH OF THE FOLLOWING IS THE BEST ESTIMATE FOR THE WEIGHT OF DEBT FOR USE IN CALCULATING THE WACC?
Assume that you have been hired as a consultant by CGT a major producer of chemicals and plastics Show more 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 firms weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets $38000000 Net plant property and equipment $101000000 Total assets $139000000 Liabilities and Equity Accounts payable $10000000 Accruals $9000000 Current liabilities $19000000 Long-term debt (40000 bonds $1000 par value) $40000000 Total liabilities $59000000 Common stock (10000000 shares) $30000000 Retained earnings $50000000 Total shareholders equity $80000000 Total liabilities and shareholders equity $139000000 The stock is currently selling for $15.00 per share and its noncallable $1000 par value 20-year 7.25% bonds with semiannual payments are selling for $1150.00. The beta is 1.35 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 firms tax rate is 40%. Which of the following is the best estimate for the weight of debt for use in calculating the WACC? Show less
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