Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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. 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, but the stock market has had an average annual return of 14.5 percent during the past five years. CGT is in the 40 percent tax bracket.

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

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 = 67.8% and wd = 32.2%

E. we = 72.4% and wd = 27.6%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Emotions In Finance Booms Busts And Uncertainty

Authors: Jocelyn Pixley

2nd Edition

1107633370, 978-1107633377

More Books

Students also viewed these Finance questions

Question

=+ Importance of governance implications for leadership

Answered: 1 week ago

Question

3. Define the attributions we use to explain behavior

Answered: 1 week ago