Question
In: Finance
2) Acme Mining Company has 7.7 million shares of common stock outstanding. In addition, the company...
2) Acme Mining Company has 7.7 million shares of common stock outstanding. In addition, the company has 200,000 bonds outstanding. The bonds have a 6.4% coupon (paid semi-annually) and their par value is $1,000. The common stock currently sells for $35 per share and has a beta of 1.20. The bonds have 10 years until maturity, and sell for 105% of par. The market risk premium is 7%, the risk-free rate is 2%, and the company’s tax rate is 40%.
a) What is the current market value of the company?
b) If the company is evaluating a new investment project that has the same risk as the company’s typical project, what rate should the firm use to discount the project’s cash flows?
c) Assume the company adjusts its capital structure and now has no debt (i.e. the company is all equity financed). What is the company’s stock beta?
Solutions
Expert Solution
| Bonds | Common Stock | ||
| Market value | 210000000 | 269500000 | |
| a | Total value | 479500000 | |
| Cost of debt pre tax | 5.74% | ||
| Cost of debt after tax | 3.44% | ||
|
Cost of equity= Rf+Beta*Rp |
10.400% | ||
| b | WACC | 7.35% | |
| c | Unlevered Beta= Equity Beta/(1+(1-t)*D/E) | 0.8177 |
Workings
jeff jeffy answered 1 month agoRelated Solutions
Raymond Mining Corporation has 2 million shares of common stock outstanding and 25,000 semiannual bonds outstanding,...
Raymond Mining Corporation has 2 million shares of common stock
outstanding and 25,000 semiannual bonds outstanding, each with an
annual coupon rate of 10% and a par value $1,000. The common stock
currently sells for $35 per share and has a beta of 1.25. The bonds
have exactly 10 years to maturity and the current annual yield to
maturity (YTM) is 9%. The market risk premium for stocks is 7.6%,
T-bills are yielding 4%, and company's tax rate is 35%....
Titan Mining Corporation has 8 million shares of common stock outstanding, 5 million shares of preferred...
Titan Mining Corporation has 8 million shares of common stock
outstanding, 5 million shares of preferred stock outstanding, and
100,000 units of 9 percent semiannual bonds outstanding, par value
$1,000 each. The preferred stock pays a dividend of $6 per share.
The common stock currently sells for $32 per share and has a beta
of 1.15, the preferred stock currently sells for $67 per share, and
the bonds have 15 years to maturity and sell for 91 percent of par....
Titan Mining Corporation has 8 million shares of common stock outstanding, 5 million shares of preferred...
Titan Mining Corporation has 8 million shares of common stock
outstanding, 5 million shares of preferred stock outstanding, and
100,000 units of 9 percent semiannual bonds outstanding, par value
$1,000 each. The preferred stock pays a dividend of $6 per share.
The common stock currently sells for $32 per share and has a beta
of 1.15, the preferred stock currently sells for $67 per share, and
the bonds have 15 years to maturity and sell for 91 percent of par....
Titan Mining Corporation has 9.7 million shares of common stock outstanding, 410,000 shares of preferred stock...
Titan Mining Corporation has 9.7 million shares of common stock
outstanding, 410,000 shares of preferred stock outstanding, and
215,000 bonds outstanding with a par value of $1,000 each. The
common stock currently sells for $45 per share and has a beta of
1.35, the preferred stock currently sells for $95 per share, and
the bonds sell for 116 percent of par. The cost of common equity is
16.48 percent, preferred equity is 4.21 percent, and the debt's
yield to maturity...
Titan Mining Corporation has 8.9 million shares of common stock outstanding, 330,000 shares of preferred stock...
Titan Mining Corporation has 8.9 million shares of common stock
outstanding, 330,000 shares of preferred stock outstanding, and
175,000 bonds outstanding with a par value of $1,000 each.
The common stock currently sells for $37 per share and has a
beta of 1.45, the preferred stock currently sells for $87 per
share, and the bonds sell for 118 percent of par.
A. The cost of common equity is 15.17 percent, preferred equity
is 5.75 percent, and the debt's yield to...
Titan Mining Corp. has 8.5 million shares of common stock and 135,000 bonds outstanding. The common...
Titan Mining Corp. has 8.5 million shares of common stock and
135,000 bonds outstanding. The common stock is selling for $34 per
share and the estimated cost of equity is 13.4%. The bonds,
currently selling for 114% of par, are BB-rated with 10 years to
maturity. Similar risk bonds are trading at a default spread of
2.06%. The yield on T-bonds is 4%. Titan Mining’s corporate tax
rate is 35 percent. What is Titan’s weighted average cost of
capital? Please...
Raymond Mining Corporation has 8.5 million shares of common stock outstanding and 135,000 quarterly bonds outstanding...
Raymond Mining Corporation has 8.5 million shares of common
stock outstanding and 135,000 quarterly bonds outstanding with face
value $1000 and coupon rate of 7.5%. The common stock currently
sells for $34 per share and has a beta of 1.25, and the bonds have
15 years to maturity and sell for 114 percent of the face value.
The market risk premium is 7.5 percent, T-bills are yielding 4
percent (thus risk free rate is 4%), and Raymond Mining tax rate...
Raymond Mining Corporation has 8.5 million shares of common stock outstanding and 135,000 quarterly bonds outstanding...
Raymond Mining Corporation has 8.5 million shares of common
stock outstanding and 135,000 quarterly bonds outstanding with face
value $1000 and coupon rate of 7.5%. The common stock currently
sells for $34 per share and has a beta of 1.25, and the bonds have
15 years to maturity and sell for 114 percent of the face value.
The market risk premium is 7.5 percent, T-bills are yielding 4
percent (thus risk free rate is 4%), and Raymond Mining tax rate...
Titan Mining Corporation has 6.2 million shares of common stock outstanding, 215,000 shares of 3.5 percent...
Titan Mining Corporation has 6.2 million shares of common stock
outstanding, 215,000 shares of 3.5 percent preferred stock
outstanding, and 100,000 bonds with a semiannual coupon rate of 5.2
percent outstanding, par value $1,000 each. The common stock
currently sells for $74 per share and has a beta of 1.10, the
preferred stock has a par value of $100 and currently sells for $82
per share, and the bonds have 16 years to maturity and sell for 106
percent of...
Raymond Mining Corporation has 8.9 million shares of common stock outstanding, 330,000 shares of 5% $100...
Raymond Mining
Corporation has 8.9 million shares of common stock outstanding,
330,000 shares of 5% $100 par value preferred stock outstanding,
and 151,000 7.50% semiannual bonds outstanding, par value $1,000
each. The common stock currently sells for $37 per share and has a
beta of 1.45, the preferred stock currently sells for $93 per
share, and the bonds have 15 years to maturity and sell for 118% of
par. The market risk premium is 7.7%, T-bills are yielding 4%, and...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Discuss the following paradox: American employees work longer hours than they did a generation ago and...
- If you were to explain why software engineering teams have different ethical responsibilities than other computing...
- C++ language We are given a Queue data structure that supports standard operations like Enqueue() and...
- An electron moves with a speed of 3.0
- Kalamazoo College requires all computers connected to the campus network be running up-to-date antivirus software. When...
- Easy Car Corp. is a grocery store located in the Southwest. It paid an annual dividend...
- THE FOLLOWING QUESTION IS FOR C PROGRAMMING LANGUAGE Printing the decimal equivalent of a binary number....
ADVERTISEMENT