Titan Mining Corporation has 6.4 million shares of common stock outstanding and 175,000 6.2 percent semiannual bonds

Question:

Titan Mining Corporation has 6.4 million shares of common stock outstanding and 175,000 6.2 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $53 per share and has a beta of 1.15; the bonds have 25 years to maturity and sell for 106 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 3.1 percent, and the company’s tax rate is 22 percent.

a. What is the firm’s market value capital structure?

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?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...

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