Assume that you have been hired as a consultant by CGT, a major producer of chem
ID: 2648834 • Letter: A
Question
Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, the company has long term debt/equity ratio of 0.5.
The stock is currently selling for $15.25 per share, and its $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 T- 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%. The firm's tax rate is 40%.
1. Which of the following is the best estimate for the weight of debt for use in calculating the firm
Explanation / Answer
1. Which of the following is the best estimate for the weight of debt for use in calculating the firm