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wolverine [178]
2 years ago
6

Titan Mining Corporation has 6.3 million shares of common stock outstanding, 220,000 shares of 3.6 percent preferred stock outst

anding, and 105,000 bonds with a semiannual coupon rate of 5.3 percent outstanding, par value of $1,000 each. The common stock currently sells for $73 per share and has a beta of 1.15, the preferred stock has a par value of $100 and currently sells for $83 per share, and the bonds have 17 years to maturity and sell for 107 percent of par. The market risk premium is 7.1 percent, T-bills are yielding 3.1 percent, and the company’s tax rate is 23 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., .1616.)

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 enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Business
1 answer:
Shkiper50 [21]2 years ago
7 0

The firm’s market value capital structure is $503,910,000.

The rate the firm should use to discount the project’s cash flows is 9.33%.

a.

We will begin by finding the market value of each type of financing. We find:

Market value of debt = MVD = 105,000*($1,000)*(1.07) = $25,750,000

Market value of preferred cost = MVP = 220,000*($83) = $18,260,000

Market value of equity = MVE = 6,300,000*($73) = $459,900,000

And the total market value of the firm is:

V = $25,750,000 + 18,260,000+ 459,900,000

V = $503,910,000

b.

So, the market value weights of the company's financing are:

D/V = $25,750,000/$503,910,000 = 0.0511

P/V = $18,260,000/$503,910,000 = 0.0362

E/V = $459,900,000/$503,910,000 = 0.9127

For projects equally as risky as the firm itself, the WACC should be used as the discount rate.

First, we can find the cost of equity using the CAPM. The cost of equity is:

RE = .031 + 1.15(.071)

RE = 0.1030, or 10.03%

The cost of debt is the YTM of the bonds, so:

P0 = $1,070 = $26.50(PVIFAR%,34) + $1,000(PVIFR%,34)

R = 2.228%

YTM = 2.228% × 2

YTM = 4.46%

And the aftertax cost of debt is:

RD = (1 - .22)(.0446)

RD = .0348, or 3.48%

The cost of preferred stock is:

RP = $3.60/$73

RP = .0493, or 4.93%

Now we can calculate the WACC as:

WACC = 0.0511(.0348) + 0.0362(.0493) + 0.9127(.1003)

WACC =0.0933, or 9.33%

Hence, The firm’s market value capital structure is $503,910,000.

The rate the firm should use to discount the project’s cash flows is 9.33%.

Learn more about equity valuation:

brainly.com/question/17191274

#SPJ1

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GarryVolchara [31]
I think ty best answer would be b.
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19. An investor has purchased a property that is giving him a 10% rate of return. Potential gross rents total $10,000.00 a month
gogolik [260]

Answer:

the market value of the property is $628,300

Explanation:

The computation of the market value of the property is shown below;

Gross rent $10,000 × 12= $120,000

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= $110,400

After that

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And ,finally the market value of the property is

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3 years ago
1. How is GE changing its business strategy and business model? What is the role of information technology in GE’s business? 2.
NemiM [27]

Answer:

See explanation section.

Explanation:

Requirement 1

General Electric (GE) is always helping people with a variety of modern technology. Therefore, its main aim is to focus on technology that assists the world with a faster data collection medium. The company is converting its business towards technology. With the help of Jet engines and oil-refining material, it can generate electric power. The cloud-based software changed the whole company. Now, the company is monitoring only about technology to become a successful software servicing company.

Requirement 2

As the future of the world is getting modernized, General Electric company is focusing on software and the Internet of Things. GE is trying to take its customers base from traditional on-site manufacturing to digital software-based operations. The launch of sensor-generating data has revolutionized the success. Using cloud-based data make the company more productive and reliable. The overall thinking towards the future is superlative.

Requirement 3

General Electric company launched Predix in 2015 to accumulate data. The three decisions to use Predix are -

1. As Predix can operate on each cloud infrastructure, it can provide sensor and analyze the data quite quickly.

2. Since Predix is a high standard cloud-based protocol, it enables customers to join quickly to the mechanical market.

3. With the help of Predix, each customer can adjust the size and range of the current levels of use to understand their requirements.

Requirement 4

People like to use from all over the world, General Electric (GE) equipment. They also like to mix that equipment with other companies' equipment to produce a high-qualified machine. As people are using more GE equipment with others, it is discussing the customers to handle the GE related equipment for a permanent basis. Therefore, it is becoming a software company.

3 0
3 years ago
You plan to retire in 19 years. At the point of retirement, you want to be able to withdraw 32,877 at the end of each year forev
xz_007 [3.2K]

Since no any further contributions will be made to the retirement fund, the amount you need today is $172,014.

<h3>Calculation of Present Value and Present Value of a Perpetuity</h3>

The first step is to calculate the present value (PV) of the contribution at the point of retirement in 19 years using the formula for calculating the present value (PV) of perpetuity as follows:

PV in 19 years = CF / R ............................................. (1)

Where;

PV in 19 years = Present value (PV) of the contribution at the point of retirement in 19 years = ?

CF = Cash flow or yearly expected withdrawal = $32,877

R = Rate of return after retirement = 5.02%, or 0.0502

Substituting the values into equation (1), we have:

PV in 19 years = $32,877 / 0.0502 = $654,920.3187251

The amount you need today can be calculated using the present value formula as follows:

PV = FV / (1 + r)^n ……………………………………………. (2)

Where;

PV = Present value or the amount you need today = ?

FV = Future value or PV in 19 years = $654,920.3187251

r = rate of return prior to retirement = 7.29%, or 0.0729

n = number of years = 19

Substituting the values into equation (2), we have:

PV = $654,920.3187251 / (1 + 0.0729)^19 = $654,920.3187251 / 3.80737505803714 =  $172,013.607470218

Rounding to the nearest dollar, we have:

PV = $172,014

Therefore, the amount you need today is $172,014.

Learn more about present value here: brainly.com/question/17322936.

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Explain two factors have affected the organisation of the businesses functional activities
Romashka [77]

Answer:

The two factors that affect the organization of businesses functional activities are ;

Strategy

Technology

Environment

Explanation:

Strategy determines the approach or the course of action to direct the activities of the organization of businesses. Strategy is the innovation room where new approach to solving a problem is discovered and implemented.

Technology; the technology for manufacturing goods and services affect the organization of business functional activities.

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