Assumethat you have been hired as a consultant by CGT, a major produce

QUESTION

Assumethat you have been hired as a consultant by CGT, a major producerof chemicals and plastics, including plastic grocery bags,styrofoam cups, and fertilizers, to estimate the firms weightedaverage cost of capital. The balance sheet and some otherinformation are provided below.AssetsCurrent
Calculating Cost of Equity(R E ): Based on the CAPM, Cost of Equity (R E ) = R f (R M R f ) Beta of the Stock () =1.35 Risk-free rate on 20years Treasry bond (R f ) = 5.50% Required Return on theStock

ket (R M ) = 11.50% Cost of Equity(R E ) = 5.50% 1.35 (11.50% -5.50%) = 0.055 1.35 (0.06) = 0.136 (or) 13.60% Cost of Equity(R E ) = 13.60%

ANSWER:

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