Titan Mining Corporation has 8.2 million shares of common stock outstanding, 260
ID: 2718496 • Letter: T
Question
Titan Mining Corporation has 8.2 million shares of common stock outstanding, 260,000 shares of 4 percent preferred stock outstanding, and 140,000 7 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $30 per share and has a beta of 1.10, the preferred stock currently sells for $80 per share, and the bonds have 10 years to maturity and sell for 110 percent of par. The market risk premium is 7 percent, T-bills are yielding 3 percent, and the company’s tax rate is 38 percent.
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.)
If the company 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? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Titan Mining Corporation has 8.2 million shares of common stock outstanding, 260,000 shares of 4 percent preferred stock outstanding, and 140,000 7 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $30 per share and has a beta of 1.10, the preferred stock currently sells for $80 per share, and the bonds have 10 years to maturity and sell for 110 percent of par. The market risk premium is 7 percent, T-bills are yielding 3 percent, and the company’s tax rate is 38 percent.
Explanation / Answer
a) the firm's market value capital structure is given below:
b) For project evaluation the firm should use its WACC which is : 7.6812%. This is so because, the new project has the same risk as the firm's typical project.
The calculations are given below:
CAPITAL STRUCTURE Nos Market Market MV (millions) Price -$ Value Weight Million $ 7% semi-annual Debt 0.14 1100 154.0 0.3660 4% Preferred stock 0.26 80 20.8 0.0494 Equity 8.20 30 246.0 0.5846 420.8Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.