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What rate should the tmc use to discount project cash flows

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Reference no: EM132519163

Titan Mining Corporation (TMC) has the following outstanding securities:

  • 9 million shares of common stock,
  • 500,000 shares of 7% preferred stock, and
  • 20,000 of 8.5% semi-annual bonds with par value at $1,000.

The common stock currently sells for $34 per share and has a beta of 1.2, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 93% of par. The market risk premium is 10%, T-bills are yielding 5%, and Titan Mining's tax rate is 35%.

Question a) What is the firm's market value capital structure?

Question b) If Titan Mining Corporation is evaluating a new investment project, what rate should the TMC use to discount the project's cash flows?

Question c) Why the rate in part (b) is the appropriate rate to be used in evaluating new investment ?

Reference no: EM132519163

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