Capital should firm use to discount the project cash flows

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Reference no: EM131891658

1. Titan Mining Corporation is financed with half equity and half debt. Their financial structure includes 9.3 million shares of common stock trading at $34 per share with a β of 1.20. Their debt is composed of 6.8 percent coupon bonds maturing in 20 years and selling for 104 percent of par. They pay a tax rate of 35 percent. Return on the market portfolio is 10.5 percent and return on the risk-free investment is 3.5 percent. Titan Mining is evaluating a new investment project with half the business risk of their typical projects - specifically, the project under consideration has a β0 of 1/2 the magnitude of the β0 of their typical projects. If this project has the same level of financial risk as that of their typical projects (i.e. they are going to finance this project with the same degree of leverage as they use to finance their typical projects), what weighted average cost of capital should the firm use to discount the project's cash flows?

A. 5.94 percent

B. None of these values are correct.

C. 4.02 percent

D. 8.04 percent

2. A stock with a beta of 0.87 has an expected return of 12% and an alpha of 1.5% when the market expected return is 11.5% . What must be the risk free rate that satisfies these conditions? please explain

3.82%

3.84%

3.83%

3.81%

Reference no: EM131891658

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