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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 is 35%. Raymond Mining is considering an investment which will cost $2,590,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $580,000. This inflow will increase to $1,500,000 and then $2,000,000 for the following years before ceasing permanently (thus the project has in total 4 years).
What is the cost of debt for this project (before tax)?
What is the cost of equity?
What is the weight of debt in the WACC calculation?
What is the project's WACC?
What is the Internal Rate of Return for the above project?
Assuming that in the previous calculation you would find WACC to be 10% and IRR to be 20%, would you accept this project?
Assuming a WACC of 10%, what is the Discounted Payback Period for this project?
Assuming a WACC of 10%, what is the Profitability Index for this project?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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 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
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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 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%,
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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...
Raymond Mining Corporation has 9.4 million shares of common stock outstanding, 380,000 shares of 4% $100...
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 Corporation has 8.4 million shares of common stock outstanding, 280,000 shares of 6 percent...
Raymond Mining Corporation has 8.4 million shares of common
stock outstanding, 280,000 shares of 6 percent $100 par value
preferred stock outstanding, and 141,000 7.50 percent semiannual
bonds outstanding, par value $1,000 each. The common stock
currently sells for $32 per share and has a beta of 1.20, the
preferred stock currently sells for $94 per share, and the bonds
have 20 years to maturity and sell for 113 percent of par. The
market risk premium is 7.2 percent, T-bills...
Raymond Mining Corporation has 9.9 million shares of common stock outstanding, 430,000 shares of 6 percent...
Raymond Mining Corporation has 9.9 million shares of common
stock outstanding, 430,000 shares of 6 percent $100 par value
preferred stock outstanding, and 171,000 7.50 percent semiannual
bonds outstanding, par value $1,000 each. The common stock
currently sells for $47 per share and has a beta of 1.45, the
preferred stock currently sells for $96 per share, and the bonds
have 20 years to maturity and sell for 118 percent of par. The
market risk premium is 8.7 percent, T-bills...
Titan Mining Corporation has 8.5 million shares of common stock outstanding and 250,000 8 percent annual...
Titan Mining Corporation has 8.5 million shares of
common stock outstanding and 250,000 8 percent annual coupon bonds
outstanding, par value $1,000 each. The common stock currently
sells for $34 per share and has a beta of 1.20, and the bonds have
15 years to maturity and sell for 93 percent of par. The market
risk premium is 7 percent, T-bills are yielding 5 percent, and
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What is the firm’s market value capital...
Titan Mining Corporation has 9.4 million shares of common stock outstanding and 380,000 bonds that pay...
Titan Mining Corporation has 9.4 million shares of common stock
outstanding and 380,000 bonds that pay a coupon rate of 4.8 percent
APR, make semiannual payments and have a par value of $1,000 each.
The common stock currently sells for $42 per share and has a beta
of 1.1; the bonds have 10 years to maturity and sell for 113
percent of par. The market risk premium is 8.2 percent, T-bills are
yielding 3 percent, and the company’s tax rate...
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