# If Titan Mining 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?

a. To find out the agency’s market worth capital construction, we first must calculate the market worth of debt and market worth of fairness. The market worth of debt could be calculated by multiplying the variety of bonds excellent by the bond’s market value, which is 115% of par, or \$1,150. Subsequently, the market worth of debt is \$460,000,000. To calculate the market worth of fairness, we will multiply the variety of shares excellent by the inventory’s market value, which is \$44. Subsequently, the market worth of fairness is \$424,000,000. To find out the burden of every element, we divide the market worth of debt (\$460,000,000) by the sum of the market worth of debt and the market worth of fairness (\$460,000,000 + \$424,000,000) = 0.52 or 52%. The load of fairness is 1 – 0.52 = 0.48 or 48%.

b. To find out the low cost charge, we have to calculate the agency’s price of fairness. We are able to use the Capital Asset Pricing Mannequin (CAPM) to find out the price of fairness, which is: Rf + Beta * (Rm – Rf)

the place Rf is the risk-free charge (4%), Beta is the agency’s beta (1.3), and Rm is the market danger premium (8.4%). Subsequently, the price of fairness is 4 + 1.3 * (8.4) = 12.92%. To seek out the suitable low cost charge, we have to add the agency’s price of debt to the price of fairness, weighted by the proportion of debt and fairness within the agency’s capital construction. The agency’s price of debt is 6% and the proportion of debt within the agency’s capital construction is 52%. The agency’s price of fairness is 12.92% and the proportion of fairness within the agency’s capital construction is 48%. Subsequently, the low cost charge is (0.52 * 0.06) + (0.48 * 0.1292) = 8.67%.

c. To find out the corporate’s weighted common flotation price, we first must calculate the flotation price for every supply of financing. To calculate the flotation price for debt, we multiply the flotation price share (7%) by the quantity of debt raised (17 million) to get \$1,190,000. To calculate the flotation price for fairness, we multiply the flotation price share (10%) by the quantity of fairness raised (17 million) to get \$1,700,000. To seek out the corporate’s weighted common flotation price, we divide the entire flotation price by the entire quantity of funds raised. The full flotation price is \$1,190,000 + \$1,700,000 = \$2,890,000, and the entire quantity raised is \$17,000,000. Subsequently, the weighted common flotation price is \$2,890,000 / \$17,000,000 = 0.17 or 17%.

d. To find out the true price of constructing the brand new meeting line after taking flotation prices into consideration, we add the flotation prices to the sum of money raised. The flotation prices are \$1,190,000 + \$1,700,000 = \$2,890,000 and the quantity raised is \$17,000,000. Subsequently, the true price of constructing the brand new meeting line is \$17,000,000 + \$2,890,000 = \$19,890,000.