Raymond Mining Corporation has 8.5 million shares of common stock outstanding and 135,000 quarterly bonds outstanding...

  

 

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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 Equity? What is the EANPV of a project that requires an initial investment of $42,000 and has revenues of $10,000 per year for 8 years? Assume the discount rate is 10 percent and the tax rate is zero. 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 Equity? What is the EANPV of a project that requires an initial investment of $42,000 and has revenues of $10,000 per year for 8 years? Assume the discount rate is 10 percent and the tax rate is zero.

Answer rating: 100% (QA)

To find the cost of equity for Raymond Mining Corporation we can use the Capital Asset Pricing Model ... View the full answer