Titan Mining Corporation has 9.3 million shares of common stock outstanding and 260,000 6.8 percent semiannual...

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Titan Mining Corporation has 9.3 million shares of common stockoutstanding and 260,000 6.8 percent semiannual bonds outstanding,par value $1,000 each. The common stock currently sells for $34 pershare and has a beta of 1.2, and the bonds have 20 years tomaturity and sell for 104 percent of par. The market risk premiumis 7 percent, T-bills are yielding 3.5 percent, and Titan Mining'stax rate is 35 percent?
a. What is Titan's cost of debt?
b. What us Titan's cost of equity?
c. What is Titan's weighted average cost of capital (WACC) usingmarket value weights?
d. What discount rate should Titan use to evaluate a newinvestment project that has the same risk as the firm's typicalproject?

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3.8 Ratings (423 Votes)

Answer a Number of bonds outstanding 260000 Face Value 1000 Current Price 104 1000 Current Price 1040 Value of Debt 260000 1040 Value of Debt 270400000 Annual Coupon Rate 680 Semiannual Coupon Rate 340 Semiannual Coupon 340 1000 See Answer

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Titan Mining Corporation has 9.3 million shares of common stockoutstanding and 260,000 6.8 percent semiannual bonds outstanding,par value $1,000 each. The common stock currently sells for $34 pershare and has a beta of 1.2, and the bonds have 20 years tomaturity and sell for 104 percent of par. The market risk premiumis 7 percent, T-bills are yielding 3.5 percent, and Titan Mining'stax rate is 35 percent?a. What is Titan's cost of debt?b. What us Titan's cost of equity?c. What is Titan's weighted average cost of capital (WACC) usingmarket value weights?d. What discount rate should Titan use to evaluate a newinvestment project that has the same risk as the firm's typicalproject?