$4.$ Gold Mines of Canada, Inc. is opening a new mine in the Yukon. How should they fund the costs of this project? What discount rate should they use?

If they issue debt, they will have to pay $9\mathrm{.}5\%$ 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 $$2\mathrm{.}45$ per share for a yield of $5\mathrm{.}4\%.$ Last year at this time the stock sold for $$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.