data apply to Problems a through d. The problems MUST be kept together.)You are employed by CGT, a Fortune 500 firm that is a major producer of chemicals and plastics, including plastic grocery bags,
The following data apply to Problems a through d. The problems MUST be kept together.)You are employed by CGT, a Fortune 500 firm that is a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and fertilizers. You are on the corporate staff as an assistant to the CFO. This is a position with high visibility and the opportunity for rapid advancement, providing you make the right decisions. Your boss has asked you to estimate the weighted average cost of capital for the company. The balance sheet and some other information about CGT follow below.Assets Current assets $ 38,000,000Net plant, property, and equipment 101,000,000Total assets $139,000,000Liabilities and equity Accounts payable $ 10,000,000Accruals 9,000,000Current liabilities $ 19,000,000Long term debt (40,000 bonds, $1,000 par value) 40,000,000Total liabilities 59,000,000Common stock (10,000,000 shares) 30,000,000Retained earnings 50,000,000Total shareholders equity 80,000,000Total liabilities and shareholders equity $139,000,000You check The Wall Street Journal and see that CGT stock is currently selling for $7.50 per share and that CGT bonds are selling for $875.00 per bond. The bonds have a S1,000 par value, a 7.25% annual coupon rate, semiannual payments, are not callable, and a 20-year maturity. CGT’s 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 expected 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. CGT is in the 40% tax bracket.a. What is the best estimate of the after-tax cost of debt for CGT?b. Using the CAPM approach, what is the best estimate of the cost of equity for CGT?c. Give your best estimates for weights to be used to calculate the WACC?d. What is the best estimate of the WACC for CGT?
