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

  1. Titan Mining Corporation has 8 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 100,000 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 beta of 1.15, the preferred stock currently sells for $67 per share, and the bonds have 15 years to maturity and sell for 91 percent of par. The market risk premium is 10 percent, T-bills are yielding 5 percent, and Titan Mining’s tax rate is 35 percent.
  1. If Titan Mining 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?

Answer: Rate of return firm should use in 13.51%

Solutions

Expert Solution

Calculate the rate of return of project as follows:

Formulas:

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In second solution market value of preferred stock is taken wrongly has 6 instead of 67.

Wrong answer 13.51%

Formulas:

jeff jeffy answered 8 months ago
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