Deep Mines Has 43,800 Shares of Common Stock Outstanding with a Beta

question 26

Multiple Choice

Deep Mines has 43,800 shares of common stock outstanding with a beta of 1.54 and a market price of $51 a share. There are 10,000 shares of 7 percent preferred stock outstanding with a stated value of $100 per share and a market value of $83 a share. The 8 percent semiannual bonds have a face value of $1,000 and are selling at 96 percent of par. There are 5,000 bonds outstanding that mature in 13 years. The market risk premium is 7.5 percent, T-bills are yielding 3.6 percent, and the tax rate is 21 percent. 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?

• A) 9.59 percent
• B) 8.72 percent
• C) 9.17 percent
• D) 8.28 percent
• E) 9.30 percent

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Definitions:

LAN

Local Area Network, a network that connects computers within a limited area like a home, school, or office building.

MAN

Metropolitan Area Network, a network that interconnects users with computer resources in a geographic area larger than that covered by a LAN but smaller than a WAN.

WAN

Stands for Wide Area Network, a telecommunications network that extends over a large geographic area for the primary purpose of computer networking.

LAN

Local Area Network; a computer network that interconnects computers within a limited area such as a residence, school, or office building.