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Raymond Mining Corporation has 8.5 million shares of common stock outstanding, 290,000 shares of 4% $100...

Raymond Mining Corporation has 8.5 million shares of common stock outstanding, 290,000 shares of 4% $100 par value preferred stock outstanding, and 143,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $33 per share and has a beta of 1.25, the preferred stock currently sells for $95 per share, and the bonds have 10 years to maturity and sell for 114% of par. The market risk premium is 7.3%, T-bills are yielding 6%, and Raymond Mining’s tax is 38%.

a. What is the firm’s market value capital structure? (Enter your answers in whole dollars.)

Market value
Debt $
Equity $
Preferred stock $

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 8.5 million shares of common stock outstanding, 290,000 shares of 4% $100 par value preferred stock outstanding, and 143,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $33 per share and has a beta of 1.25, the preferred stock currently sells for $95 per share, and the bonds have 10 years to maturity and sell for 114% of par. The market risk premium is 7.3%, T-bills are yielding 6%, and Raymond Mining’s tax is 38%.

a. What is the firm’s market value capital structure? (Enter your answers in whole dollars.)

Market value
Debt $
Equity $
Preferred stock $

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              %


Solutions

Expert Solution

Narket value of different asset classes is calculated by multiplying with current market price.

But the cost of firm is calculated through by taking market value of equity + book value of preference shares + book vale of debt.

a)

b)

ekkarill92 answered 3 years ago
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