Exhibit 10.1

Assume that you have been hired as a consultant by CGT, a majorproducer of chemicals and plastics, including plastic grocery bags,styrofoam cups, and fertilizers, to estimate the firm's weightedaverage cost of capital. The balance sheet and some otherinformation are provided below. Assets Current assets $38,000,000Net plant, property, and equipment $101,000,000 Total assets$139,000,000 Liabilities and Equity Accounts payable $10,000,000Accruals $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) $30,000,000 Retainedearnings $50,000,000 Total shareholders' equity $80,000,000 Totalliabilities and shareholders' equity $139,000,000

The stock is currently selling for $17.75 per share, and itsnoncallable $3,319.97 par value, 20-year, 1.70% bonds withsemiannual payments are selling for $881.00. The beta is 1.29, theyield on a 6-month Treasury bill is 3.50%, and the yield on a20-year Treasury bond is 5.50%. The required return on the stockmarket is 11.50%, but the market has had an average annual returnof 14.50% during the past 5 years. The firm's tax rate is 40%.

Refer to Exhibit 10.1. What is the best estimate of the firm'sWACC? Do not round your intermediate calculations.

A 11.26%

B 11.74%

C 12.11%

D 12.59%

E 12.97%