Problem:

Titan Mining Corporation has 8.7 million shares of common stock outstanding, 310,000 shares of 6 percent preferred stock outstanding, and 165,000 7.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $35 per share and has a beta of 1.35, the preferred stock currently sells for $85 per share, and the bonds have 20 years to maturity and sell for 116 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 5 percent, and Titan Mining's tax rate is 30 percent.

Required:

Question 1: What is the firm's market value capital structure?

Question 2: 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?

Note: Show supporting computations in good form.