Raymond Mining Corporation has 8.5 million shares of common stock outstanding, 250,000 shares of 5% $100 par value preferredstock outstanding, and 135,000 7.5% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34per share and has a beta of 1.25, the preferred stock currently sells for $91 per share, and the bonds have 15 years to maturity and sellfor 114% of par. The market risk premium is 7.5%, T-bills are yielding 4%, and Raymond Mining's tax rate is 35%.a. What is the firm's market value capital structure? (Enter your answers in whole dollars.)DebtEquityPreferred stockMarket value$153,900,0$$ 22,750,00b. If Raymond Mining is evaluating a new investment project that has the same risk as the firm's typical project, what rate should thefirm use to discount the project's cash flows? (Do not round intermediate calculations. Enter your answer as a percentage roundedto 3 decimal places.)Discount rate0 %

Step 1:a). Market Price of Bond = Par Value*% Quoted price = $1000*114%= $1140Total Market Value of…

Answered: Raymond Mining Corporation has 8.5…

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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Western Electric has 34,000 shares of common stock outstanding at a price per share of $83 and a rate of return of 12.80 percent. The firm has 7,500 shares of 8.20 percent preferred stock outstanding at a price of $97.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $416,000 and currently sells for 113 percent of face. The yield to maturity on the debt is 8.20 percent. What is the firm's weighted average cost of capital if the tax rate is 40 percent?
True or False. A company borrows additional financing and as a result their weight of debt increases (holding dollars of equity constant). Because the weight of debt increases, the company's WACC will always decrease. True O False
es Lingenburger Cheese Corporation has 6.6 million shares of common stock outstanding, 235,000 shares of 3.9 percent preferred stock outstanding, par value of $100; and 120,000 bonds with a semiannual coupon rate of 5.6 percent outstanding, par value $1,000 each. The common stock currently sells for $70 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $86 per share, and the bonds have 15 years to maturity and sell for 104 percent of par. The market risk premium is 7.4 percent, T-bills are yielding 3.4 percent, and the company's tax rate is 21 percent. a. What are the firm's market value capital structure weights? Note: 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? Note: Do not round intermediate calculations…
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