10 Titan Mining Corporation has 8.9 million shares of common stock outstanding a

Question

10 Titan Mining Corporation has 8.9 million shares of common stock outstanding and 330,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $37 per share and has a beta of 1.45, and the bonds have 15 years to maturity and sell for 118 percent of par. The market risk premium is 7.7 percent, T-bills are yielding 4 percent, and the company's tax rate is 40 percent. a. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) Weight Debt Equity b. 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Discount rate 8.07 %

Explanation / Answer

a.

b.

Use rate function in Excel to determine cost of debt

cost of equity = 4% + 1.45*7.7%

Discount rate = 8.07%

Amount weight equity           329,300,000.00 0.4582 debt           389,400,000.00 0.5418

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