The following information applies to the next four problems. You are employed by CGT$,$ a Fortune $500$ firm that is a major producer of chemicals and plastic goods: plastic grocery bags, styrofoam cups, and fertilizers. You are on the corporate staff as an assistant to the Vice$-$President of Finance. 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. Following are balance sheets and some information about CGT$.$

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 $$7\mathrm{.}50$ per share and that CGT bonds are selling for $$889\mathrm{.}50$ per bond. These bonds have a $7\mathrm{.}25$ percent annual coupon rate, with semi$-$annual payments. The bonds mature in twenty years. The beta for your company is approximately equal to $1\mathrm{.}1.$ The yield on a $6-$month Treasury bill is $3\mathrm{.}5$ percent and the yield on a $20-$year Treasury bond is $5\mathrm{.}5$ percent. The expected return on the stock market is $11\mathrm{.}5$ percent, but the stock market has had an average annual return of $14\mathrm{.}5$ percent during the past five years. CGT is in the $40$ percent tax bracket.

$26.$ What is best estimate for the after$-$tax cost of debt for

CGT$?$

A$.2\mathrm{.}52\%$

B$.4\mathrm{.}20\%$

C$.4\mathrm{.}35\%$

D$.5\mathrm{.}04\%$

E$.5\mathrm{.}37\%$

$27.$ Using the CAPM approach, what is the best estimate of the cost of equity for CGT$?$

A$.10\mathrm{.}10\%$

B$.12\mathrm{.}10\%$

C$.12\mathrm{.}30\%$

D$.15\mathrm{.}40\%$

E$.15\mathrm{.}60\%$

$28.$ Which of the following is the best estimate for the weights to be used when calculating the WACC?

A$.$ we $=57\mathrm{.}6\%$ and wd $=42\mathrm{.}4\%$

B$.$ we $=65\mathrm{.}2\%$ and wd $=34\mathrm{.}8\%$

C$.$ we $=66\mathrm{.}7\%$ and wd $=33\mathrm{.}3\%$

D$.$ we $=67\mathrm{.}8\%$ and wd $=32\mathrm{.}2\%$

E$.$ we $=72\mathrm{.}4\%$ and wd $=27\mathrm{.}6\%$

$29.$ What is the best estimate of the WACC for CGT$?$

A$.8\mathrm{.}65\%$

B$.8\mathrm{.}92\%$

C$.9\mathrm{.}18\%$

D$.9\mathrm{.}75\%$

E$.9\mathrm{.}83\%$