Brodsky Metals Corporation has 8.2 million shares of common stock outstanding and 260,000 4 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $30 per share and has a beta of 1.1. The bonds have 10 years to maturity and sell for 110 percent of par. The market risk premium is 7 percent, T-bills are yielding 3 percent, and the company's tax rate is 22 percent. a. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. If the company 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Brodsky Metals Corporation has 8.2 million shares of common stock outstanding and 260,000 4 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $30 per share and has a beta of 1.1. The bonds have 10 years to maturity and sell for 110 percent of par. The market risk premium is 7 percent, T-bills are yielding 3 percent, and the company's tax rate is 22 percent. a. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. If the company 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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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Question

Manshukh

Brodsky Metals Corporation has 8.2 million shares of common stock outstanding and
260,000 4 percent semiannual bonds outstanding, par value $1,000 each. The common
stock currently sells for $30 per share and has a beta of 1.1. The bonds have 10 years to
maturity and sell for 110 percent of par. The market risk premium is 7 percent, T-bills are
yielding 3 percent, and the company's tax rate is 22 percent.
a. What is the firm's market value capital structure? (Do not round intermediate
calculations and round your answers to 4 decimal places, e.g., .1616.)
b. If the company 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 and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
a.
b.
Debt
Equity
Discount rate
6.15%

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