1. Gold Mines of Canada, Inc. is opening a new mine in the Yukon. 
2. How should they fund the costs of this project? 
3. What discount rate should they use?
4. 
   
5. If they issue debt, they will have to pay 9.5% annual coupons on the bonds which will probably be rated BBB+. If they issue new common stock they will not have to pay any dividend, though currently they do pay $2.45 per share for a yield of 5.4%. Last year at this time the stock sold for $40 a share. Currently their debt to equity ratio is 75% and they are in the 35% tax bracket. It will cost GMCI $5 million each year for the next 5 years to get regulatory permits and construct the infrastructure for the mine. In year 6 the mine will begin operations and is expected to generate net cash flows of $7 million for the next 15 years when the mine will be exhausted. At this time the company will need to spend $10 million to decommission the mine.

Answer rating: 100% (QA)

Gold Mines of Canada Inc GMCI has two options for funding the costs of their new mine in the Yukon debt or equity Debt If GMCI issues debt they will h... View the full answer