Raymond Mining Corporation has 8.5 million shares of common stock outstanding and 135,000

semi-annual bonds outstanding with face value $1000 and coupon rate of 7.5%. The common

stock currently sells for $34 per share and has a beta of 1.25, and the bonds have 15 years to

maturity and sell for 114 percent of the face value ($114 per $100 of face value). The market risk

premium is 7.5 percent, T-bills are yielding 4 percent (thus risk free rate is 4%), and the Raymond

Mining tax rate is 35%. Raymond Mining is considering an investment which will cost $2,590,000.

The investment produces no cash flows for the first year. In the second year, the cash inflow is

$580,000. This inflow will increase to $1,500,000 and then $2,000,000 for the following years before

ceasing permanently. What is the project’s NPV? What is the Internal Rate of Return? What is the

Discounted Payback Period? What is the Profitability Index?

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