MicroVision has 13.87 million shares of common stock outstanding and 190,000 8.5

Question

MicroVision has 13.87 million shares of common stock outstanding and 190,000 8.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $32 per share and has a beta of 1.1, and the bonds have 15 years to maturity and sell for 91 percent of par. The market risk premium is 9.5 percent, T-bills are yielding 5 percent, and MicroVision's tax rate is 34 percent.

What is MicroVision's Market value weight of debt? what is their Market value weight of equity

If Titan Mining is evaluating a new investment project that has the same risk as the firm's typical project, what is the weighted average cost of capital?

Explanation / Answer

Hi, If you like my answer rate me first...that way only I can earn points. Thanks For debt, Par Value = $1000 Price = $910 N= 15*2 = 30 Coupon = $42.5 = $85/2 YTM = 9.88% Total debt outstanding = $910 * 190,000 = $172.9 million For Equity, Total Equity outstanding = 13.87 * $32 = $443.84 million Rm - Rf = 9.5% Rf = 5% beta = 1.1 So Expected return = 5% + 1.1*9.5% = 15.45% Market value weight of debt = 172.9/(172.9+443.84) = 0.28 Market value weight of equity = 1-0.28=0.72 WACC = 0.28 * 9.88% * (1-34%) + 0.72*15.45% = 12.95%

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