Titan Corporation has 9.3 million shares of common stock outstanding and 370,000 6.1 percent semiannual bonds outstanding, with a par value of $1,000 each. The common stock currently sells for $41 per share and has a beta of 1.25; the bonds have 20 years to maturity and sell for 112 percent of par. The market risk premium is 8.1 percent, T-bills are yielding 4 percent, and the company's tax rate is 23 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.)
Titan Corporation has 9.3 million shares of common stock outstanding and 370,000 6.1 percent semiannual bonds outstanding, with a par value of $1,000 each. The common stock currently sells for $41 per share and has a beta of 1.25; the bonds have 20 years to maturity and sell for 112 percent of par. The market risk premium is 8.1 percent, T-bills are yielding 4 percent, and the company's tax rate is 23 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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Titan Corporation has 9.3 million shares of common stock outstanding and 370,000 6.1
percent semiannual bonds outstanding, with a par value of $1,000 each. The common
stock currently sells for $41 per share and has a beta of 1.25; the bonds have 20 years to
maturity and sell for 112 percent of par. The market risk premium is 8.1 percent, T-bills are
yielding 4 percent, and the company's tax rate is 23 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.)
a. Debt
a. Equity
b. Discount rate
%
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