Problem No. 12 (a) - (Page - 430)
Finding the WACC Titan Mining Corporation has 9.3 million shares of common stock outstanding and 260,000 6.8 percent semiannual bonds outstanding,par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.20, and the bonds have 20 years to maturity and sell for 104percent of par.
The market risk premium is 7 percent, T-bills are yielding 3.5 percent, and Titan Mining's tax rate is 35 percent.

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

The data provided:
The number of bonds = 260,000
Seling price of bond = 104% of par value
Bonds par value = $1,000
Coupon rate = 7%
The number of shares = 9,300,000
The share price = $34

We need to calculate the company's market value capital structure.
The company's value capital structure is composed of the value of the bonds and value of the shares.
The market value of the Bond, MVв = Number of Bonds * Bonds par value * Selling price of bond
MVв = 260,000 * ($1,000) * (1.04)
MVв = $270.400.000
Market value of the share, MVѕ = Number of shares * Selling price for per share
MVѕ= 9,300,000 * ($34)
MVѕ= $316.200.000
So, the total market value of the firm = Market value of the bond + Market value of the share
V = $270,400,000 + $316,200,000
V = $586,600,000
So, V = $586.6 million
Hence, the total market value of the capital structure will be $586.6 million

B. If Titan Mining is evaluating a new investment project that has the same risk as the firm's typical project , what rate shuold the firm use to dicsount the project's cash flows?
The data provided:
Beta          1,2
Markrt Ris 7,00%
Tbill             3,50%
Tax RT       35%

For projects as risky as it self, we should use WACC.
First use CAPM.
0,077
7,70%
return required =7.7%
Cost of debt

Problem No. 12 (a) - (Page - 430) Finding the WACC Titan Mining Co...