1 answer

Titan Mining Corporation has 9.2 million shares of common stock outstanding and 360,000 5.2 percent semiannual...

Question:

Titan Mining Corporation has 9.2 million shares of common stock outstanding and 360,000 5.2 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $40 per share and has a beta of 1.3; the bonds have 15 years to maturity and sell for 111 percent of par. The market risk premium is 8 percent, T-bills are yielding 5 percent, and the company’s tax rate is 22 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., .3216.)

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.)

   

  


Answers

Before tax cost of debt: 4.20% RATE(15*2,1000*5.2%/2,-1110, 1000)*2 after tax cost of debt: 3.28% before tax cost x 1-tax rat

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