Titan Mining Corporation has 9 million shares of common stock outstanding and 340,000 6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $38 per share and has a beta of 1.5, and the bonds have 20 years to maturity and sell for 119 percent of par. The market risk premium is 7.8 percent, T-bills are yielding 3 percent, and the company's tax rate is 36 percent.

a.	What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

	Weight
Debt
Equity

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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Discount rate

%

2

The next dividend payment by ECY, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent, forever. The stock currently sells for $31 per share.

What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Dividend yield

%

What is the expected capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Capital gains yield

%

3

Central Systems, Inc. desires a weighted average cost of capital of 6 percent. The firm has an after-tax cost of debt of 4 percent and a cost of equity of 10 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

a) 1.83 b) 2.17c) 1.90 d) 2.10 e) 2.00

4

The difference between the present value of an investment's future cash flows and its initial cost is the: a) internal rate of return. b) profitability index. c) discounted payback period. d) payback period. e) net present value.

5

Which statement concerning the net present value (NPV) of an investment or a financing project is correct? a) An investment project should be accepted only if the NPV is equal to the initial cash flow.

b) Any type of project should be accepted if the NPV is positive and rejected if it is negative.

c) A financing project should be accepted if, and only if, the NPV is exactly equal to zero.

d) An investment project that has positive cash flows for every time period after the initial investment should be accepted.

e) Any type of project with greater total cash inflows than total cash outflows, should always be accepted.