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's tax rate is 35%. a. What is the firm's market value capital structure? (Enter your answers in whole dollars.) Debt Equity Preferred stock Market value $ $ $ 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 %

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
icon
Related questions
Question
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's tax rate is 35%.
a. What is the firm's market value capital structure? (Enter your answers in whole dollars.)
Market value
$
Debt
Equity
Preferred stock
LA
S
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
%
Transcribed Image Text: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's tax rate is 35%. a. What is the firm's market value capital structure? (Enter your answers in whole dollars.) Market value $ Debt Equity Preferred stock LA S 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 %
Expert Solution
steps

Step by step

Solved in 4 steps with 5 images

Blurred answer
Knowledge Booster
Investment in Stocks
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education