The Stetson Group, a leading producer of custom women'saccessories, has hired you to estimate the firm's weighted averagecost of capital. The balance sheet and some other information areprovided below.
Assets | |
Current assets | $7,780,000 |
Net plant, property, and equipment | 131,230,000 |
Total assets | $139,010,000 |
| |
Liabilities and Equity | |
Accounts payable | $10,003,000 |
Accruals | 9,007,000 |
Current liabilities | $19,010,000 |
Long-term debt (30,000 bonds, $1,000 par value) | 30,000,000 |
Total liabilities | $49,010,000 |
Common stock (10,000,000 shares) | 40,000,000 |
Retained earnings | 50,000,000 |
Total shareholders' equity | 90,000,000 |
Total liabilities and shareholders' equity | $139,010,000 |
The stock is currently selling for $20.25 per share, and itsnon-callable $1,000 par value, 20-year, 8.35% bonds with semiannualpayments are selling for $975.00. The beta is 1.25, the yield on a6-month Treasury bill is 2.84%, and the yield on a 20-year Treasurybond is 4.52%. The required return on the stock market is 10.50%,but the market has had an average annual return of 13.25% duringthe past 5 years. The firm's tax rate is 40%.
Refer to the data for the Stetson Group above. What is thebest estimate of the firm's WACC?
