Titan Mining Corportion has 9.3 million shares of common stock outstanding and 3

Question

Titan Mining Corportion has 9.3 million shares of common stock outstanding and 370,000 6% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $41 per share and has a beta of 1.15, and the bonds have 20 years to maturity and sell for 112% of par. The market risk premium is 8.1%, T-bills are yielding 4%, and the company's tax is 40%.

A) What is the firm's market value capital structure? (Do not round intermediate calculations & round your answer to 4 decimal places)

1) Debt---------Weight_________ (The answer is not 0.4924)

2) Equity--------Weight__________(The answer is not 0.5076)

B) 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 and enter your answer as a percent rounded to 2 decimal places)

1) Discount Rate__________% (The answer is not 8.56%)

**********Please have someone who knows how to calculate this problem complete it because the last two times I had this question answered it was wrong :( *********

Explanation / Answer

Answer:A) Market value of equity=9.3 million share*$41 per share=$381.3 million

Market value of Debt=370000*$1000*112%=41440,0000

Answer:B) Cost of equity=Rf+beta(Market risk Premium)

=4%+1.15*8.1%

=13.315%

Cost of Debt:

1120=$30 *PVIFA(r%,40)+$1000*PVIF(r%,40)

r=2.52% semiannually

R=2.52%*2=5.04%

Kd after tax=5.04%*(1-0.40)=3.024%

Discount rate=7.95%

Capital Structure Market value Weight Debt 414400000 0.5208 Equity 381300000 0.4792 Total 795700000 Debt weight 0.5208 Equity weight 0.4792

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