Titan Corporation has a debt-to-equity ratio of 1 (meaning that Titans market value of equity is equal to its market value of debt). Beta of Titan stock is 0.70. The market return is 9%, and the T-bills are yielding 3%.

Titan currently has 30,000 4% annual coupon bonds outstanding (Par value =1,000). The bonds will mature in 10 years and are currently priced at $922.78 per bond. Titan's tax rate is 20%.

A) (5 pts) What is Titan's cost of equity? Show your work carefully.

B) (5 pts) What is Titan's cost of debt? Show your work carefully. The yield to maturity of Titans bond can be (A) 4% (B) 3% (C) 5% (D) 6%.

C) (6 pts) What is Titan's WACC? Show your work carefully.

D) (6 pts) Titan is evaluating the investment in Project A. Project A requires an investment of $12 million today. The new investment will begin to generate an additional annual cash flow of $12 million two years from today in perpetuity. The risk of project A is comparable to the risk of Titan's existing business.

What is Project A's NPV? Show your work carefully.

E) (6 pts) Write out the exact formula (with cash flows from Project A) for IRR of Project A. Will the IRR be greater than Titan's WACC? Explain carefully.

F) (2 pts) Should Titan take project A? Explain briefly.

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