Titan Mining Corporation has 15 million shares of common stock outstanding, 1,000,000shares of 10 percent preferred stock outstanding. Titan Mining also has 220,000 bondsoutstanding with par value $1,000 each and the bonds have 18 years to maturity. The bondcurrently sell for 90 percent of par and has cost of debt before-tax of 12 percent. Thecommon stock currently sells for $35 per share and has a beta of 1.25, the preferred stockcurrently sells for $90 per share,. The market risk premium is 12 percent, T-bills are yielding7 percent, and the firm's tax rate is 34 percent. What is the corporation weighted averagecost of capital?

Weighted Average cost of capital (WACC) :— It is the average cost of capital of the firm's existing…

Answered: Titan Mining Corporation has 15 million…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The Nile Corporation has 9.9 million shares of common stock outstanding and 430,000 6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $47 per share and has a beta of 1.45. The bonds have 20 years to maturity and sell for 118 percent of par. The market risk premium is 8.7 percent, T-bills are yielding 5 percent, and the company's tax rate is 24 percent a. What is the firm's market value capital structure? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. 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? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Debt Equity b. Discount rate 0.5218 0.4782 6.95 %
Bombay Inc has 8.5 million shares of common stock outstanding, 250,000shares of 5% preferred stock outstanding, and 135,000 7.5% semi-annualbonds outstanding, par value $1000 EACH. The common stock currently sellsfor $34 per share and has a beta of 1.25, the preferred stock currently sells for$91 per share, and the bonds have 15 years to maturity and sell for 114% ofpar. The market risk premium is 7.5%, T-bills are yielding 4%, and thecompany’s tax rate is 35%.a) Calculate the firm’s market value capital structure.b) Calculate the company WACCc) If Bombay Inc generates a 7.5% with this capital, is Bombay Incdestroying or adding value discuss.
Dothraki has 50,000,000 shares of common stock outstanding that are trading for $29.70 per share. The company’s beta is 1.4. Financial analysts estimate that the market risk premium over 10-year Treasury Bonds is 6 percent and 10-year Treasury Bonds currently yield 2%. Dothraki’s outstanding bonds have a 6.0% coupon rate, a $1,000 face value, pay semi-annual coupons, and mature in 10 years. There are 450,000 of these bonds outstanding and they are currently selling in the open market for 110% of par value. The details of your relevant cash flow projections (Operating Cash Flow, Capital Spending, Net Working Capital, and Total Cash Flow) should be clearly presented along with the NPV and IRR in the cover sheet of answers, along with your final recommendation. You have also informed you that the tax rate to use for the WACC and the capital budgeting analysis is 20%. What is the WACC for Dothraki for this project?
Dothraki has 50,000,000 shares of common stock outstanding that are trading for $29.70 per share. The company’s beta is 1.4. Financial analysts estimate that the market risk premium over 10-year Treasury Bonds is 6 percent and 10-year Treasury Bonds currently yield 2%. Dothraki’s outstanding bonds have a 6.0% coupon rate, a $1,000 face value, pay semi-annual coupons, and mature in 10 years. There are 450,000 of these bonds outstanding and they are currently selling in the open market for 110% of par value. You have also been informed you that the tax rate to use for the WACC and the capital budgeting analysis is 20%. What is the WACC for Dothraki for this project?
ABC Corp has 20,000 shares of bonds outstanding with a coupon rate of 6%, face value of $1,000, and 30 years to maturity. The bonds are selling for 110 percent of par and make semiannual payments. The company also has 600,000 shares outstanding of common stock selling for $67 per share. The beta of the stock is 1.29 and the tax rate is 21%. a. If the Treasury bill rate is 3% and the market risk premium is estimated at 7%., what is ABC’s cost of equity capital? b. What is the WACC? c. ABC Corp plans to expand the current operations. If the project will pay a cash flow of 10,000 next year and then cash flows growing at a rate of 4% over the next 3 years (for a total of 4 of cash flows), what is the most ABC is willing to spend on the initial investment for this project? Please show exceln formulas
Titan Corporation has 9.6 million shares of common stock outstanding and 400,000 5.7 percent semiannual bonds outstanding, with a par value of $1,000 each. The common stock currently sells for $44 per share and has a beta of 1.2; the bonds have 20 years to maturity and sell for 115 percent of par. The market risk premium is 8.4 percent, T-bills are yielding 4 percent, and the company's tax rate is 21 percent. a. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) 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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. 460,000,000.0000 > 422,400,000.0000 > a. Debt a. Equity b. Discount rate 8.66 %
Deep Mines has 43,800 shares of common stock outstanding with a beta of 1.54 and a market price of $51 a share. The 8 percent semiannual bonds have a face value of $1,000 and are selling at 96 percent of par. There are 2,000 bonds outstanding that mature in 13 years. The expected rate of return on the market is 7.5 percent, T-bills are yielding 3.6 percent, and the tax rate is 21 percent. What is the cost of equity? 14.38 percent 11.28 percent 15.15 percent 10.73 percent 9.61 percent
True or False. A company borrows additional financing and as a result their weight of debt increases (holding dollars of equity constant). Because the weight of debt increases, the company's WACC will always decrease. True O False
SantiZerLtd currently has $200 million of market value debt outstanding. The 9 per cent coupon bonds (semi-annual pay) have a maturity of 15 years, a face value of $1000 and are currently priced at $1,024.87 per bond. The company also has an issue of 2 million preference shares outstanding with a market price of $20. The preference shares offer an annual dividend of $1.20. Santi Zer also has 14 million ordinary shares outstanding with a price of $20.00 per share. The company is expected to pay a $2.20 ordinary dividend 1 year from today, and that dividend is expected to increase by 7 per cent per year forever. If the corporate tax rate is 40 per cent, then what is the company’s weighted average cost of capital?
The market value of MCO's equity, preferred stock and debt are $7 million, $2 million, and $13 million, respectively. MCO's equity has a beta of 1.9, the market risk premium is 7%, and the risk - free rate of interest is 3%. MCO's preferred stock pays a dividend of $2.5 each year and trades at a price of $27 per share. MCO's debt trades with a yield to maturity of 8.5%. What is MCO's after-tax weighted average cost of capital (WACC) if its tax rate is 25%? The WACC is closest to: A. 11.76% B. 11.05% C. 9.8% D. 7.98% E. 10.43%
Given the following information for Watson Power Co., Find the WACC. Assume the company’s tax rate is 35 percent. Debt: 10,000 6.4 percent coupon bonds outstanding. $1,000 par value, 25 years to maturity, selling for 108 percent of par, the bonds make semiannual payments. Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15. Preferred stock: 35,000 shares of 3.5 percent preferred stock outstanding, currently selling for $72 per share Market: 7 percent market risk premium and 3.2 percent risk-free rate.
Deep Mines has 14 million shares of common stock outstanding with a beta of 1.15 and a market price of $42 a share. There are 900,000 shares of 9% preferred stock outstanding valued at $80 a share. The 10% semiannual bonds have a face value of $1,000 and are selling at 91% of par. There are 220,000 bonds outstanding that mature in 17 years. The market risk premium is 11.5%, T-bills are yielding 7.5%, and the firm's tax rate is 32%. What rate should the firm apply to project cash flows if the risk is the same as the firm's in decimal form (round to the nearest thousandth)?

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