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[solution] » Titan mining corporation has 9.1 million shares of common stock

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Titan mining corporation has 9.1 million shares of common stock
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Titan mining corporation has 9.1 million shares of common stock outstanding and 350,000 4 percent seminannual bonds outstanding, par value $1,000 each.  The common stock currently sells for $39 per share and has a beta of 1.55, and the bonds have 10 years maturity and sell for 110 percent of par.  The market risk premium is 7.9 percent, t-bills are yielding 5 percent and the company's tax rate is 40 percent.


What is the firm's market value capital structure?

Debt:

Equity:



If the company is evalutating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the profject's cash flows?


Discount rate:



a

 

Equity

 

Bonds

 

Total

 

Market Value Capital Structure

 

Capital

 

Equity

 

Bonds

 

b

 

After tax cost of Bonds

 

Par value

 

Years

 

Price

 

Coupon rate

 

Semi annual YTM

 

Annual YTM

 

Tax Rate

 

After tax cost of debt

 

Cost...

 







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This question was answered on: Feb 21, 2020

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