Titan Corporation has 8.7 million shares of common stock outstanding and 230,000 shares of 6.4% semiannual bond outstanding (par value $1,000 each). The common stock currently sells for $37 per share and has a beta of 1.20, and the bonds have 20 years to maturity and sell for 104 percent of par. The market risk premium is 7%, T-bills are yielding 3.5%, and the companys tax rate is 35%.

a. What is the firms market value capital structure? (10 points)

b. If the company is evaluating a new investment project that has the same risk as the firms typical project, what rate should the firm use to discount the projects cash flows?