Quiz chapter 9
Student name --------------------Student #----------------------
Put your answer in the table
I. II. III. IV. V.
b d e e b
Below are balance sheet and some information about CGT corporation .
Assets
Current assets $38,000,000
Net plant, property, and equipment $101,000,000
Total Assets $139,000,000
Liabilities and Equity
Accounts payable $10,000,000
Accruals $9,000,000
Current liabilities $19,000,000
Long term debt (40,000 bonds, $1,000 face 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
You 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
$889.50 per bond flotation cost is 1.5% . These bonds have a 7.25
percent annual coupon rate, with semi-annual payments. The bonds
mature in twenty years. The beta for your company is approximately
equal to 1.1. The yield on a 6-month Treasury bill is 3.5 percent
and the yield on a 20-year Treasury bond is 5.5 percent. The
expected return on the stock market is 11.5 percent. CGT is in the
40 percent tax bracket.
i. Using the CAPM approach, what is the best estimate of the cost
of equity for CGT?
a. 10.10%
b. 12.10%
c. 12.30%
d. 15.40%
e. 15.60%
ii. What is best estimate for the after-tax cost of debt for CGT?
a. 2.52%
b. 4.20%
c. 4.35%
d. 5.04%
e. 8.40%
F.-------
iii. Which of the following is the best estimate for the weights to
be used when calculating the WACCC?
a. we = 57.6% and wd = 42.4%
b. we = 65.2% and wd = 34.8%
c. we = 66.7% and wd = 33.3%
d. we = 68.2% and wd = 31.8%
e. we = 72.4% and wd = 27.6%
iv. What is the best estimate of the WACC for CGT?
a. 8.65%
b. 8.92%
c. 9.18%
d. 9.75%
e. 9.83%
f.-----------
v. Company EDNA issued a $2 dividend preferred stock for a market
value of $25 flotation cost is $3 what is the cost of the preferred
stock
a. 8.0%
b. 9.1%
c. 8.7%
d. 7.5%
i
ii
iii
iv
