3. BC Mining Corporation has 9.3 million shares of common stock outstanding and 127,000 semi-annual bonds...

 

 

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3. BC Mining Corporation has 9.3 million shares of common stock outstanding and 127,000 semi-annual bonds outstanding with a face value of $1,000 and a 6.5% coupon rate. The common stock currently sells for 5342 per share and has a beta of 1.18, and the bonds have 13 years to maturity and sell for 108% of face value. The market risk premium is 6.9%, T-bills (risk-free) yield 5%, and the company's tax rate is 40% a) What is the firm's market value capital structure? b) Estimate the firm's cost of equity, and after tax cost of debt. (c) Estimate the company's total cost of capital. 4. Based on the following information: (16 marks) State of economy Probability of state of economy Stock A Rate of return if state occurs Stock B Stock C Recession 33.33% 7% -2% 5% Normal 33.33% 10% 0% 11% Boom 33.33% 15% 3% 20% a) Which investment has the highest expected return? Which investment has the highest total risk (standard deviation)? (16 marks) 3. BC Mining Corporation has 9.3 million shares of common stock outstanding and 127,000 semi-annual bonds outstanding with a face value of $1,000 and a 6.5% coupon rate. The common stock currently sells for 5342 per share and has a beta of 1.18, and the bonds have 13 years to maturity and sell for 108% of face value. The market risk premium is 6.9%, T-bills (risk-free) yield 5%, and the company's tax rate is 40% a) What is the firm's market value capital structure? b) Estimate the firm's cost of equity, and after tax cost of debt. (c) Estimate the company's total cost of capital. 4. Based on the following information: (16 marks) State of economy Probability of state of economy Stock A Rate of return if state occurs Stock B Stock C Recession 33.33% 7% -2% 5% Normal 33.33% 10% 0% 11% Boom 33.33% 15% 3% 20% a) Which investment has the highest expected return? Which investment has the highest total risk (standard deviation)? (16 marks)