Titan Mining Corporation has 14 million shares of common stock outstanding, 9000

Question

Titan Mining Corporation has 14 million shares of common stock outstanding, 9000,000 shares of 9 percent preferred stock outstanding and 210,000 ten percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.15, the preferred stock currently sells for $80 per share, and the bonds have 17 years to maturity and sell for 91 percent of par. The market risk premium is 11.5 percent, T-bills are yielding 7.5 percent, and the firm's tax rate is 32 percent. Please calculate the weighted average cost of capital. price = Dividerd next y / (cost of Equity Cost of Equity = Dividerd next y / price + GR

Explanation / Answer

Kd = [1000*0.1*(1-0.32)] / (1000*0.91) = 7.47%

Ke = 7.5 + (11.5 - 7.5)*1.15 = 12.1%

Kp = 100*9% / 80 = 11.25%

Market Value of Equity = 14*34 = $476 million

Market Value of Debt = 210000*910 = $191.1 million

Market Value of Preferred Stock = 900000*80 = $72 million

Total Market Value = 476 + 191.1 + 72 = $739.1 million

WACC = [(476*12.1%) + (191.1*7.47%) + (72*11.25%)] / 739.1 = 10.82%

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