Titan Mining Corporation has 9.7 million shares of common stock outstanding, 410

Question

Titan Mining Corporation has 9.7 million shares of common stock outstanding, 410,000 shares of 4 percent preferred stock outstanding, and 215,000 8.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $45 per share and has a beta of 1.35, the preferred stock currently sells for $95 per share, and the bonds have 10 years to maturity and sell for 116 percent of par. The market risk premium is 8.5 percent, T-bills are yielding 5 percent, and the company’s tax rate is 35 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.)

Titan Mining Corporation has 9.7 million shares of common stock outstanding, 410,000 shares of 4 percent preferred stock outstanding, and 215,000 8.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $45 per share and has a beta of 1.35, the preferred stock currently sells for $95 per share, and the bonds have 10 years to maturity and sell for 116 percent of par. The market risk premium is 8.5 percent, T-bills are yielding 5 percent, and the company’s tax rate is 35 percent.

Explanation / Answer

MARKET VALUE OF DEBT [(215000 * ($1000 * 116%)] = $249400000

MARKET VALUE OF PREFERED SHARE (410000 * $95) = $38950000

MARKET VALUE OF EQUITY (9700000 * $45) = $436500000

TOTAL MARKET VALUE = $724850000

MARKET VALUE WEIGHT OF DEBT ($249400000 / $724850000) = 0.3441 OR 34.41%

MARKET VALUE WEIGHT OF DEBT ($38950000 / $724850000) = 0.0537 OR 5.37%

MARKET VALUE WEIGHT OF DEBT ($436500000 / $724850000) = 0.6022 OR 60.22%

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