Question $3$

Shallow Drilling, Inc. has $54,600$ shares of common stock outstanding with a beta of $1\mathrm{.}34$ and

a market price of $$39\mathrm{.}00$ per share. There are $19,250$ shares of $6\mathrm{.}60\%$ preferred stock

outstanding with a stated value of $$100$ per share and a market value of $$77\mathrm{.}00$ per share.

The company has $6,160$ bonds outstanding that mature in $15$ years. Each bond has a face

value of $$1,000,$ an $8\mathrm{.}20\%$ semiannual coupon rate, and is selling for $99\mathrm{.}80\%$ of par. The

market risk premium is $10\mathrm{.}77\%,$ T$-$Bills are yielding $3\mathrm{.}83\%,$ and the tax rate is $21\%.$ What

discount rate should the firm apply to a new project's cash flows if the project has the same

risk as the company's typical project?

$7\mathrm{.}33\%$

$10\mathrm{.}45\%$

$9\mathrm{.}38\%$

$9\mathrm{.}27\%$

$8\mathrm{.}30\%$