Titan Mining Corporation has 10.1 million shares of common stock outstanding, 45

Question

Titan Mining Corporation has 10.1 million shares of common stock outstanding, 450,000 shares of 5 percent preferred stock outstanding, and 235,000 8.9 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $49 per share and has a beta of 1.55, the preferred stock currently sells for $99 per share, and the bonds have 15 years to maturity and sell for 116 percent of par. The market risk premium is 8.9 percent, T-bills are yielding 4 percent, and Titan Mining

Titan Mining Corporation has 10.1 million shares of common stock outstanding, 450,000 shares of 5 percent preferred stock outstanding, and 235,000 8.9 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $49 per share and has a beta of 1.55, the preferred stock currently sells for $99 per share, and the bonds have 15 years to maturity and sell for 116 percent of par. The market risk premium is 8.9 percent, T-bills are yielding 4 percent, and Titan Mining

Explanation / Answer

a.    

MVD = 235,000($1,000)(1.16) = $272.6M;   

MVE = 10.1M($49) = $494.9M

MVP= 450,000($99) = $44.55M;  

V = $272.6M + 494.9M + 44.55M = $812.05M

D/V = 272.6/812.05 = .3357; (Debt)

P/V = 44.55/812.05 = .0549; (Preffered)

E/V = 494.9/812.05 = .6094 (Equity)

       b.    

For projects equally as risky as the firm itself, the WACC should be used as the discount rate.

               RE = .04 + 1.55(.089) = 17.80%

               P0 = $1,116 = $44.50(PVIFAR%,30) + $1,000(PVIFR%,30);    R = 3.7957%, YTM = 7.5914%

               RD = (1

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