Question
Ramblin Wreck is a firm specializing in engineering components. The firm is publicly traded and is considering the following project: The project will last 5.00
Ramblin Wreck is a firm specializing in engineering components. The firm is publicly traded and is considering the following project:
The project will last 5.00 years with an annual cash flow of $40.00 million. The project will require an initial investment of $140.00 million
The firm must determine the cost of capital to evaluate the project. (The project is within the firms normal activities)
Ramblin Wreck, Inc. Financial Data:
| STOCK DATA: | BOND DATA: | ||
|---|---|---|---|
| Current Price Per Share | $28.00 | Current Price Per Bond | $936.00 |
| # of Shares | 2.00 million | # of bonds | 20,000.00 |
| Book Value | $50 million | Annual Coupon Rate | 8.00% |
| Face Value Per Bond | $1,000 | ||
| Maturity | 10 years |
The risk free rate in the economy is currently 2.00%, while investors have a market risk premium of 7.00%. Ramblin Wreck, Inc. has a beta of 1.44. The tax rate is 36.00%.
What is the yield to maturity on Ramblin Wreck, Inc. bonds?
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