Question
IZO Gold Mines of Canada, Inc. is considering opening a new mine in the Yukon. Your boss, vishal, has asked you to conduct an analysis
IZO Gold Mines of Canada, Inc. is considering opening a new mine in the Yukon. Your boss, vishal, has asked you to conduct an analysis of the project, including calculating NPV. Given the need to maintain the companys target debt to equity ratio of 29%, your company will issue debt to fund this project. The bonds will have 8.92% annual coupons and will probably be rated BBB. Currently your company pays dividends of $6.87 per share and sells for $109.92 a share. Your company is in the 40% tax bracket. Using 4 years of daily data, you have determined that the beta of your company's stock is 1.42. You believe that the stock market as a whole will earn 12.81% next year, and that the risk-free interest rate will be 0.73%. What is the Weighted Average Cost of Capital for your company? What discount rate will you use in calculating the NPV?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started