Problem 13-12 Finding the WACC Titan Mining Corporation has 9.0 million shares o
ID: 2729440 • Letter: P
Question
Problem 13-12 Finding the WACC Titan Mining Corporation has 9.0 million shares of common stock outstanding and 340,000 6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $38 per share and has a beta of 1.5, and the bonds have 20 years to maturity and sell for 119 percent of par. The market risk premium is 7.8 percent, T-bills are yielding 3 percent, and Titan Mining’s tax rate is 36 percent. Weight Debt .5419 Equity .4581 b. 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? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Discount rate =
Explanation / Answer
calculation of weighted average cost of capital weighted average cost of capital cost of equity * weight of equity + cost of debt ( 1 - tax rate ) * weight of debt calculation of cost of equity cost of equity risk free rate + beta ( market risk premium ) cost of equity 3 % + 1.50 ( 7.80 ) cost of equity 3 % + 11.70 % cost of equity 14.70% weighted average cost of capital 14.70 * 0.4581 + 6 ( 1 - 0.36 ) * 0.5419 weighted average cost of capital 6.73 + 2.08 weighted average cost of capital 8.81% firm should use 8.81 % rate to discount the projects cash flows