Problem 14-16 Finding the WACC [LO3] Titan Mining Corporation has 8.7 million sh
ID: 2660972 • Letter: P
Question
Problem 14-16 Finding the WACC [LO3]
Titan Mining Corporation has 8.7 million shares of common stock outstanding, 310,000 shares of 6 percent preferred stock outstanding, and 165,000 7.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $35 per share and has a beta of 1.35, the preferred stock currently sells for $85 per share, and the bonds have 20 years to maturity and sell for 116 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 5 percent, and Titan Mining
Titan Mining Corporation has 8.7 million shares of common stock outstanding, 310,000 shares of 6 percent preferred stock outstanding, and 165,000 7.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $35 per share and has a beta of 1.35, the preferred stock currently sells for $85 per share, and the bonds have 20 years to maturity and sell for 116 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 5 percent, and Titan Mining
Explanation / Answer
The Question doesn't mentions the Par value of Preffered Stock..WHich is needed to calculate the COst of Preffered Stock
Now assuming Par value of Prefferd stock to be 100
Cost of Preffered Stock = Annual Payment/Price Of Preffered Stock = 6/85 = 0.0705=7.05%
ForCOst OF debt ( Rd )
N=40
Payment per semi annual = 37.5
PV=1160
FV=1000
Rd = 6.104%
COst of Equity = 5+1.35*(7.5) = 15.125%
WACC = (0.7)*(6.104)*(0.5188)+0.0383*(7.05)+0.4431*(15.125)
= 2.217+0.27+6.701
= 9.188%