Question:

Bolsa Gold Mines of Canada, Inc. is considering opening a new mine in the Yukon. Your boss, Jie, has asked you to conduct an analysis of the project, including calculating NPV. Given the need to maintain the company's target debt to equity ratio of 66%, your company will issue debt to fund this project. The bonds will have 10.10% annual coupons and will probably be rated BBB-. Currently your company pays dividends of $7.41 per share and sells for $103.74 a share. Your company is in the 29% tax bracket. Using 5 years of daily data, you have determined that the beta of your company's stock is 1.38. You believe that the stock market as a whole will earn 13.29% next year, and that the risk-free interest rate will be 0.80%. What is the Weighted Average Cost of Capital for your company? What discount rate will you use in calculating the NPV? This question is worth 50 marks and should take you no more than 15 minutes to complete.

Thanks,