You$$ve been hired by Ausome Gold Mines $($AuG$)$ to provide advice and recommendations as they chart

their future growth. AuG is considering two different options. It can acquire a smaller company that has

an existing mine and significant property rights allowing for future expansion, or it can expand into a

new mine site of its own.

Relatively little formal analysis has been used in Ausome$$s capital budgeting process. Prior to doing

any further analysis, you decide to calculate the company$$s required return by calculating its weighted

average cost of capital $($WACC$).$ Ausome$$s marginal tax rate is $35\%.$

Ausome$$s funding comes in three forms: bonds, common shares, and preferred shares. You have

collected the following information:

Debt: $30,0006$ percent semi$-$annual coupon bonds outstanding, $$1000$ par value, $20$ years to

maturity, selling for $92$ percent of par.

Common Stock: $1\mathrm{.}8$M shares outstanding. The $3-$month T$-$bill rate is $0\mathrm{.}5\%,$ the market rate of return

is $12\%$ and the stock has a beta value of $1\mathrm{.}15.$ The stock is currently trading at $$115.$

Preferred Stock: $100,000$ shares of $3$ percent preferred stock outstanding, currently selling for $110$

percent of par per share.

Part $1$:

a$.$ Determine Ausome$$s capital structure.

b$.$ What is Ausome$$s after$-$tax WACC?

Use a WACC of $10\%$ for your Ausome in calculations going forward.