Titan Mining Corporation has 9.3 million shares of common stock outstanding, 370

Question

Titan Mining Corporation has 9.3 million shares of common stock outstanding, 370,000 shares of 6 percent preferred stock outstanding, and 195,000 8.1 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $41 per share and has a beta of 1.15, the preferred stock currently sells for $91 per share, and the bonds have 20 years to maturity and sell for 112 percent of par. The market risk premium is 8.1 percent, T-bills are yielding 4 percent, and Titan Mining

Explanation / Answer

Statement showing computation on the basis of Market Value Stock Number Price Market Value Weight Return working notes Return Weighted return Common Stock                 9,300,000.00                          41.00                                                      381,300,000.00                          0.6020 ke =Rf+Beta(Market risk premium = 4% +1.15(8.1%) = 13.315% 13.32% 8.02% Preferred Stock                     370,000.00                          91.00                                                        33,670,000.00                          0.0532 kp =dividend / Price = 6/91 6.59% 0.35% Bonds                     195,000.00                    1,120.00                                                      218,400,000.00                          0.3448 kd=intt(1-t)price = 81(1-.4)/1120 = 4.34% 1.50% Market Vaue Capital Structure                                                      633,370,000.00                          1.0000 Discount rate to be used 9.86%

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