Titan Mining Corporation has 9.4 million shares of common stock outstanding, 380

Question

Titan Mining Corporation has 9.4 million shares of common stock outstanding, 380,000 shares of 4 percent preferred stock outstanding, and 200,000 8.2 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $42 per share and has a beta of 1.20, the preferred stock currently sells for $92 per share, and the bonds have 10 years to maturity and sell for 113 percent of par. The market risk premium is 8.2 percent, T-bills are yielding 3 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.)

If the company 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? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Titan Mining Corporation has 9.4 million shares of common stock outstanding, 380,000 shares of 4 percent preferred stock outstanding, and 200,000 8.2 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $42 per share and has a beta of 1.20, the preferred stock currently sells for $92 per share, and the bonds have 10 years to maturity and sell for 113 percent of par. The market risk premium is 8.2 percent, T-bills are yielding 3 percent, and the company’s tax rate is 35 percent.

Explanation / Answer

Titan Mining Corporation All Amounts in $ a. Firm's Market Value Capital Structure Capital Base Quantity Market Value Market (Nos.) Rate Value Weight Common Stock 9400000 42 394800000 60.2050% 4% Preferred Stock 380000 92 34960000 5.3312% 8.2% Semiannual Bonds 200000 1130 226000000 34.4638% Total 655760000 b. Cash Flow Discount Rate Capital Base Market Value Capital Post Tax Weighted Rate Rate Market Value Common Stock 394800000 6.24% 6.24% 24635520 4% Preferred Stock 34960000 4.00% 4.00% 1398400 8.2% Semiannual Bonds 226000000 8.20% 5.3300% 12045800 655760000 38079720 Weighted Average Cost of Capital (WACC) = Discounted Cash Flow Rate = 5.81%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.