Question

a. Explain the role weighted average cost of capital plays when determining a project's cost of capital. b. Miller Manufacturing has a target debt-equity ratio of 0.66. Its cost of equity is18 per cent, and its cost of debt is 8 per cent. If the tax rate is 35 per cent.What is Miller's WACC? c. Titan Mining Corporation has 8 million shares of equity outstanding and1,350,000 5.9 per cent semi-annual bonds outstanding, par value £100 each.The equity currently sells for £32 per share and has a beta of 1.3, and the bonds have 15 years to maturity and sell for 93 per cent of par. The market risk premium is 8 per cent, T-bills are yielding 4 per cent, and Titan Mining's tax rate is 28 per cent. What is the firm's market value capital structure? d. The following information applies to the questions displayed below.An all-equity firm is considering the following projects: The T-bill rate is 5 per cent, and the expected return on the market is 6.9 percent. Which projects should be accepted? e. Suppose your boss comes to you and asks you to re-evaluate a capital budgeting project. The first evaluation was in error, he explains, because it ignored flotation costs. To correct for this, he asks you to evaluate the project using a higher cost of capital which incorporates these costs. Is your boss' approach correct? Why or why not?

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