Y9

Assume that you have been hired as a consultant by ARC, a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and fertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets RM 38,000, 000 Net plant, property, and equipment 1 01' 000' 000!' Total assets RM1 39.000. 000!1 Liabilities Accruals I ] 9, @. 000 Long - term debt Current liabilities RM W (40,000 bonds, RM1,000 par value) 40 000 OOOH Total liabilities , RM 59,000 UODH Common stock shares ),30,000,000 Retained earnings , 50,000 DOOH Total shareholders' equity , 80 000 OGGE Total liabilities and and Equity Accounts payable RM 10,000,000 { shareholders' equity RM139, OOG' ODOH The stock is currently selling for RM15.25 per share, and its noncallable RM1, 000 par value, 20 - year, 7.25% bonds with semiannual payments are selling for RM 875.00. The 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 required 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. The firm's tax rate is 40 % . a) What is the after - tax cost of debt? b) What is the firm's cost of equity? ) What is the weight of debt? d) What is the firm's WACC? 1. Assume that you have been hired as a consultant by ARC, a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and fertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below. Assets Current assets RM 38,000,000 Net plant, property, and equipment 101,000,000 Total assets RM139,000.000 Liabilities and Equity Accounts payable RM 10,000,000 Accruals _ 9,000,000 Current liabilities RM 19,000,000 Long-term debt (40,000 bonds, RM 1,000 par value) 40,000,000 Total liabilities RM 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 RM139,000,000 The stock is currently selling for RM15.25 per share, and its noncallable RM 1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for RM875.00. The 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 required 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. The firm's tax rate is 40%. a) What is the after-tax cost of debt? b) What is the firm's cost of equity? ) What is the weight of debt? d) What is the firm's WACC