Question

Titan Mining Corporation has 8.3 million shares of common stock outstanding, 305,000 shares of 3.9 percent preferred stock outstanding, and 190,000 bonds with a semiannual coupon rate of 5.2 percent outstanding, par value $2,000 each. The common stock currently sells for $56 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $100 per share, and the bonds have 19 years to maturity and sell for 108 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 3.2 percent, and the company's tax rate is 25 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., 1616.) 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 enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Debt Preferred stock Equity Discount rate b.

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut AC Wrap Text Calibri 11 General ECopy Fill Merge & Center Insert Delete Format Paste в IU* +.0 .00 .00 .0 Conditional Format Cell Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Clipboard Number Editing Font Alignment Styles Cells fox BV334 BX BY ВТ BW BQ BR BS BU BV BZ 322 BOND HAS PAR VALUE OF $2000, IT SELLS AT 108% OF PAR VALUE 323 BOND MARKET PRICE = 108% X 2000 2160 324 325 326 a MARKET VALUE CAPITAL STRUCTURE PRICE VALUE 327 SOURCE NUMBER WEIGHTS 2160 0.4531 328 DEBT 190000 410400000 329 30500000 PREFERRED STOCK 305000 100 0.0337 EQUITY 8300000 464800000 330 56 0.5132 331 905700000 1.0000 332 333 COST OF DEBT 334 5.20% COUPON RATE 335 PAR VALUE 2000 COUPON (S) 336 104 337 CURRENT PRICE 2160 338 YEARS 19 339 PERIODS IN A YEAR 2 2.2829% [-RATЕ(ВТЗ38*ВТЗ39,-втз36/ВТЗ39,Втз37,-втз35)] 340 YTM YTM (ANNUAL) 1 kd(after tax) = КE САРМ 4.5657% 341 4.5657%*(1-0.25) = CONvexity DGM beta 3.42% 342 YIELD bond portfolio RI UTILITY, SHARPE, beta LEASING PV, FV, ANNUITY clean port future INDEX DIR right INTL CAP BUD SANDRINE WACC II Rea erences: CF670 120% WA 08:45 TENG 01-12-2019

ke - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center $ % Insert Delete Format Paste в IU* +.0 .00 .00 .0 Conditional Format Cell Sort & Find & Format Painter Clear Filter Select Formatting as Table Styles Clipboard Editing Font Alignment Number Styles Cells fox BV363 BX BY ВТ BW BQ BR BS BU BV BZ 344 345 COST OF PREFERRED STOCK 2 kp DIVIDEND/PRICE 3.9/100 = 3.90% 346 347 348 COST OF EQUITY ke Rfbeta*(Rm-Rf) Rf 3.2%, Rm-Rf = 6.8%, beta = 1.20 349 3 ke 3.2%1.20*(6.8%) = 11.36% 350 351 352 353 354 CALCULATION OF WACC 355 SOURCE AMOUNT WEIGHTS COC WEIGHTED COST 356 В*С В C 3.42% 1.5517% 357 DEBT 410400000 0.4531 3.90% 358 PREFERRED STOCK 30500000 0.0337 0.1313% 11.36% 5.8299% 359 EQUITY 464800000 0.5132 7.51% 360 905700000 WACC 361 DISCOUNT RATE = WACC = 7.51% 362 b 363 364 UTILITY, SHARPE, beta YIELD bond portfolio RI КЕ САРМ DGM beta LEASING PV, FV, ANNUITY clean port future INDEX DIR right coNvexity INTL CAP BUD SANDRINE WACC II erences: CF670 Rea 120% WA 08:45 TENG 01-12-2019