Raymond Mining Corporation has 9.4 million shares of common stock outstanding, 380,000 shares of 4% $100 par value preferred stock outstanding, and 161,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $42 per share and has a beta of 1.20, the preferred stock currently sells for $91 per share, and the bonds have 10 years to maturity and sell for 113% of par. The market risk premium is 8.2%, T-bills are yielding 3%, and Raymond Mining's tax rate is 35%. a. What is the firm's market value capital structure? (Enter your answers in whole dollars.) Debt Equity Preferred stock Market value $ $ $ b. If Raymond Mining is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 3 decimal places.) Discount rate %
Raymond Mining Corporation has 9.4 million shares of common stock outstanding, 380,000 shares of 4% $100 par value preferred stock outstanding, and 161,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $42 per share and has a beta of 1.20, the preferred stock currently sells for $91 per share, and the bonds have 10 years to maturity and sell for 113% of par. The market risk premium is 8.2%, T-bills are yielding 3%, and Raymond Mining's tax rate is 35%. a. What is the firm's market value capital structure? (Enter your answers in whole dollars.) Debt Equity Preferred stock Market value $ $ $ b. If Raymond Mining is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 3 decimal places.) Discount rate %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Raymond Mining Corporation has 9.4 million shares of common stock outstanding, 380,000 shares of 4% $100 par value preferred
stock outstanding, and 161,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $42
per share and has a beta of 1.20, the preferred stock currently sells for $91 per share, and the bonds have 10 years to maturity and sell
for 113% of par. The market risk premium is 8.2%, T-bills are yielding 3%, and Raymond Mining's tax rate is 35%.
a. What is the firm's market value capital structure? (Enter your answers in whole dollars.)
Market value
$
Debt
Equity
Preferred stock
LA
S
b. If Raymond Mining is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the
firm use to discount the project's cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded
to 3 decimal places.)
Discount rate
%
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