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Business, 17.03.2020 05:28 savannahwatson620102

Collins Group The Collins Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below.

Assets
Current assets $38,000,000
Net plant, property, and equipment 101,000,000
Total assets 139000000

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) 30000000
Retained earnings 50,000,000
Total shareholders' equity 80,000,000
Total liabilities and shareholders' equity 139000000

The stock is currently selling for $15.25 per share, and its noncallable $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 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%.

Refer to the data for the Collins Group. What is the best estimate of the after-cost of debt?

a. 4.64%
b. 4.88%
c. 5.14%
d. 5.40%
e. 5.67%

Using CAPM, what is the Collins Group’s cost of equity?
What is Collins Group’s WACC?
The Collins Group common stock currently yields 3% and analysts expect earnings to grow 6%. Based on this information, what do you estimate its cost of equity to be?

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