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Titan Mining Corporation has 8 million shares of common stock outstanding, 5 million shares of preferred...

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Finance

  1. Titan Mining Corporation has 8 million shares of common stockoutstanding, 5 million shares of preferred stock outstanding, and100,000 units of 9 percent semiannual bonds outstanding, par value$1,000 each. The preferred stock pays a dividend of $6 per share.The common stock currently sells for $32 per share and has a betaof 1.15, the preferred stock currently sells for $67 per share, andthe bonds have 15 years to maturity and sell for 91 percent of par.The market risk premium is 10 percent, T-bills are yielding 5percent, and Titan Mining’s tax rate is 35 percent.
  1. If Titan Mining is evaluating a new investment project that hasthe same risk as the firm’s typical project, what rate should thefirm use to discount the project’s cash flows?

Answer: Rate of return firm should usein 13.51%

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