Titan Mining Corporation has 8.6 million shares of common stock outstanding and

Question

Titan Mining Corporation has 8.6 million shares of common stock outstanding and 300,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.3, and the bonds have 15 years to maturity and sell for 115 percent of par. The market risk premium is 7.4 percent, T-bills are yielding 3 percent, and Titan Mining’s tax rate is 40 percent.

a. What is the firm's market value capital structure? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616)) Weight Debt

Equity

b. If Titan Mining 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 and round your final answer to 2 decimal places. (e.g., 32.16))

Discount rate

Explanation / Answer

Answer:a

Answer:b

Re=3%+1.3*7.4%=12.62%

1150=25*PVIFA(r%,30)+$1000*PVIF(r%,30)

r=1.84%

R=1.84*2=3.68%

Kd after tax=3.68%*(1-0.40)=2.208%

Capital structure Market value Weight Common stock 292400000 0.458739 Bonds 345000000 0.541261 Total 637400000

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