Titan Corporation has 5.4 million shares of common stock outstanding and 125,000 5.8 percent semiannual bonds outstanding,
Question:
Titan Corporation has 5.4 million shares of common stock outstanding and 125,000 5.8 percent semiannual bonds outstanding, with a par value of $1,000 each. The common stock currently sells for $53 per share and has a beta of 1.15; the bonds have 25 years to maturity and sell for 103 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 2.9 percent, and the company’s tax rate is 22 percent.
a. What is the firm’s market value capital structure?
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?
Step by Step Answer:
a The firms market value capital structure 5354 million sha...View the full answer
Corporate Finance
ISBN: 9781260772388
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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