What discount rate should the firm apply to a new project

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Problem 1: ABC Corporation has 14 million shares of common stock outstanding, 900,000 shares of preferred stock outstanding that pay an annual dividend of $9 per share, and 210,000 ten percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.15, and the preferred stock currently sells for $80 per share. The bonds have 17 years left to maturity and sell for 91 percent of par. The market risk premium is 11.5 percent, T-bills are yielding 7.5 percent, and the firm's tax rate is 32 percent. What discount rate should the firm apply to a new project's cash flows if the project has the same risk as the firm's typical project?

Reference no: EM132807167

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