Elway Mining Corporation has 8 million shares of common stock outstanding, 1 million shares of 6 percent preferred stock outstanding, and 100,000 9 percent semiannual bonds outstanding, par value \($1,000\) each.

The common stock currently sells for \($35\) per share and has a beta of 1.0, the preferred stock currently sells for \($60\) per share, and the bonds have 15 years to maturity and sell for 89 percent of par. The market risk premium is 8 percent, T-bills are yielding 5 percent, and Elway Mining’s tax rate is 34 percent.

a. What is the firm’s market value capital structure?

b. If Elway Mining is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows?