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 firm’s normal activities) Ramblin Wreck, Inc. Financial Data:
STOCK DATA: BOND DATA:
Current Price Per Share $29.00 Current Price Per Bond $921.00
# 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 6.00%. Ramblin Wreck, Inc. has a beta of 1.46. The tax rate is 36.00%. What is the yield to maturity on Ramblin Wreck, Inc. bonds?