Burns Mining Corporation has 8 million shares of common stock, 400,000 preference shares and 150,000 bonds outstanding. The bonds have 15 years to maturity and

sell for 94 percent of par ($1,000). The relevant coupon rate is 6.5 percent and the bond pays semi-annually. Common stock currently sells for $57 per share and has a

beta of 1.25. The preference share currently sells for $78 per share, offering $5 fixed dividend and has a par value of $100. The market risk premium is 8 percent, T-bills are yielding 5.5 percent, and Burns Mining's tax rate is 34 percent.

(a) What is the market value of:

(i) The firm's debt?

(ii) The firm's equity (i.e. common stock)?

(iii) The firm's preference shares?

(iv) The firm.

(b) What is the weight, in the firm's capital structure, of:

(i) The firm's debt?

(ii) The firm's equity (i.e. common stock)?

(iii) The firm's preference shares?

(c) Assume Burns Mining is evaluating a new investment project that has the same risk as the firm's typical project. As an analyst at this firm, you are trying

to determine the discount rate that the firm should use to discount the project's cash flows.

(i) What is the firm's cost of equity?

(ii) Write down the equation that must be solved in order to find the beforetax cost-of-debt and verify that the before-tax cost-of-debt is 7.16% per

annum nominal.

(iii) What is the firm's after-tax cost of debt?

(iv) What is the firm's cost of preference shares?

(v) What is the firm's Weighted Average Cost of Capital (WACC)?