1. Titan Mining Corporation is financed with half equity and half debt. Their financial structure includes 9.3 million shares of common stock trading at $34 per share with a β of 1.20. Their debt is composed of 6.8 percent coupon bonds maturing in 20 years and selling for 104 percent of par. They pay a tax rate of 35 percent. Return on the market portfolio is 10.5 percent and return on the risk-free investment is 3.5 percent. If Titan Mining is evaluating a new investment project with the same business risk and the same financial risk as that of their typical projects, what weighted average cost of capital should the firm use to discount the project's cash flows?
A. 8.04 percent
B. 8.34 percent
C. None of these values are correct
D. 8.16 percent
2. Titan Mining Corporation is financed with half equity and half debt. Their financial structure includes 9.3 million shares of common stock trading at $34 per share with a β of 1.20. Their debt is composed of 6.8 percent coupon bonds maturing in 20 years and selling for 104 percent of par. They pay a tax rate of 35 percent. Return on the market portfolio is 10.5 percent and return on the risk-free investment is 3.5 percent. Titan Mining is evaluating a new investment project with half the business risk of their typical projects - specifically, the project under consideration has a β0 of 1/2 the magnitude of the β0 of their typical projects. In addition, suppose management has re-appraised the overall riskiness of their business going forward - they have concluded that they are going to transition to a new capital structure composed of 80 percent debt, 20 percent equity. What weighted average cost of capital, given this lower business risk but higher financial risk, should the firm use to discount the project's cash flows?
A. 8.43 percent
B. 5.88 percent
C. None of these values are correct.
D. 4.02 percent