What rate should the firm use to discount the project

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Organic Produce Corporation has 8.9 million shares of common stock outstanding, 640,000 shares of 7.4 percent preferred stock outstanding, and 189,000 of 8.6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $65.40 per share and has a beta of 1.34, the preferred stock currently sells for $106.60 per share, and the bonds have 13 years to maturity and sell for 89 percent of par. The market risk premium is 7 percent, T-bills are yielding 5.7 percent, and the firm's tax rate is 35 percent.
Required:

(a) What is the firm's market value capital structure? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)

Market value weight of debt
Market value weight of preferred stock
Market value weight of equity

(b) If the firm is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows?

 

 

Reference no: EM13266356

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