Titan Mining Corporation has 9 million shares of common stock outstanding, 250,0

Question

Titan Mining Corporation has 9 million shares of common stock outstanding, 250,000 share of 6 percent preferred stock outstanding, and 105,000 7.5 percent semiannual bonds outstanding, par value $1000 each. The common stock currently sells for $34 per share and has a beta of 1.25, the preferred stock currently sells for $91 per share, and the bonds have 15 years to maturity and sell for 93 percent of par. The market risk premium is 8.5 percent, T-bills are yielding 5 percent and Titan Mining's tax rate is 35 percent. A) What is the firm's market value structure? B) If Titan Mining 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?

Explanation / Answer

MVD = 105,000($1,000)(0.93) = $97,650,000 MVE = 9,000,000($34) = $306,000,000 MVP = 250,000($91) = $22,750,000 And the total market value of the firm is: V = $97,650,000 + 306,000,000 + 22,750,000 = $426,400,000 So, the market value weights of the company’s financing is: D/V = $97,650,000/$426,400,000 = .2290 P/V = $22,750,000/$426,400,000 = .0534 E/V = $306,000,000/$426,400,000 = .7176

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