This topic contains a solution. Click here to go to the answer

Author Question: The following data apply to problems 7578 below.You are employed by GCUT, a Fortune 500 firm that is ... (Read 38 times)

zl00505

  • Full Member
  • ***
  • Posts: 146

The following data apply to problems 75–78 below.

You are employed by GCUT, 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 GCUT follows below.

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 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

You check The Wall Street Journal and see that GCUT stock is currently selling for $8.20 per share and that GCUT bonds are selling for $910 per bond. The bonds have a $1,000 par value, an 8.5% annual coupon rate, semiannual payments, are not callable, and have a 22-year maturity. GCUT’s beta is 1.3, the yield on a 6-month Treasury bill is 3.9%, and the yield on a 20-year Treasury bond is 6%. The expected return on the stock market is 12.6%, but the market has had an average annual return of 15.1% during the past 5 years. GCUT is in the 40% tax bracket.


What is the best estimate of the after-tax cost of debt for GCUT?

5.14%


5.69%


5.82%


6.13%



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by zl00505 on Aug 7, 2023

Kevin5!

  • Full Member
  • ***
  • Posts: 188
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
Answer Preview
Only 29% of students answer this correctly




zl00505

  • Member
  • Posts: 146
Reply 2 on: Aug 7, 2023
Wow, this really help


vickybb89

  • Member
  • Posts: 347
Reply 3 on: Yesterday
Gracias!

 

Did you know?

People with alcoholism are at a much greater risk of malnutrition than are other people and usually exhibit low levels of most vitamins (especially folic acid). This is because alcohol often takes the place of 50% of their daily intake of calories, with little nutritional value contained in it.

Did you know?

The term bacteria was devised in the 19th century by German biologist Ferdinand Cohn. He based it on the Greek word "bakterion" meaning a small rod or staff. Cohn is considered to be the father of modern bacteriology.

Did you know?

In Eastern Europe and Russia, interferon is administered intranasally in varied doses for the common cold and influenza. It is claimed that this treatment can lower the risk of infection by as much as 60–70%.

Did you know?

As the western states of America were settled, pioneers often had to drink rancid water from ponds and other sources. This often resulted in chronic diarrhea, causing many cases of dehydration and death that could have been avoided if clean water had been available.

Did you know?

Side effects from substance abuse include nausea, dehydration, reduced productivitiy, and dependence. Though these effects usually worsen over time, the constant need for the substance often overcomes rational thinking.

For a complete list of videos, visit our video library