Martin Mining has the following information regarding its debt and equity Find the weighted average cost of capital Assume the tax rate is 25 Beta 1 25 Expected Return on Market 13 75 Treasury Bond Rate 2 30 Floatation Cost of Equity 3 Book Value of Debt $3,000,000,000 Market Value of Debt $3,500,000,000 Book Value of Equity $5,500,000,000 Market Value of Equity $4,250,000,000 Bond Information Coupon rate 6 Maturity 20 Years Maturity Value $1,000 Current Price 982 25 Assume Tax is paid semiannually Martin Mining is considering a new investment that will last for six years The project has projected sales of $2,557,000 Variable costs are 62 percent of sales and fixed costs are $90,000 depreciation $191,000 per year Prepare a pro forma income statement assuming a tax rate of 25 percent Assume the project costs $1,500,000 What is projected net income What is operating cash flow Now assume that Martin Mining is planning to evaluate the project in problem (2) using the information on the cost of capital from problem (1) In addition to the previous information, assume that Martin will need to invest $800,000 in net working capital and that it will be recovered at the end of the project Evaluate the project using NPV and IRR Assume 1 euro $1 25 in the 180 day forward market and the 180 day risk free rate is 9 in the U S and 6 in France Does interest rate parity hold Spot rate $1 23

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Posted on Jul 20, 2024

Martin Mining has the following information regarding its debt and equity. Find the weighted average cost of capital. Assume the tax rate is 25%.

Beta 1.25

Expected Return on Market 13.75%

Treasury Bond Rate 2.30%

Floatation Cost of Equity 3%

Book Value of Debt $3,000,000,000

Market Value of Debt $3,500,000,000

Book Value of Equity $5,500,000,000

Market Value of Equity $4,250,000,000

Bond Information

Coupon rate 6%

Maturity 20 Years

Maturity Value $1,000

Current Price 982.25

Assume Tax is paid semiannually

Martin Mining is considering a new investment that will last for six years. The project has projected sales of $2,557,000. Variable costs are 62 percent of sales and fixed costs are $90,000; depreciation $191,000 per year. Prepare a pro forma income statement assuming a tax rate of 25 percent. Assume the project costs $1,500,000. What is projected net income? What is operating cash flow?
Now assume that Martin Mining is planning to evaluate the project in problem (2) using the information on the cost of capital from problem (1). In addition to the previous information, assume that Martin will need to invest $800,000 in net working capital and that it will be recovered at the end of the project. Evaluate the project using NPV and IRR.
Assume 1 euro = $1.25 in the 180-day forward market and the 180-day risk-free rate is 9% in the U.S. and 6% in France. Does interest rate parity hold? Spot rate = $1.23.