Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $20 per share and has a beta of 0.7. There are 1 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and the firm’s tax rate is 21%. BOOK-VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short-term securities $ 3.0 Bonds, coupon = 7%, paid annually(maturity = 10 years, current yield to maturity = 9%) $ 10.0 Accounts receivable 5.0 Preferred stock (par value $20 per share) 3.0 Inventories 9.0 Common stock (par value $0.10) 0.1 Plant and equipment 20.0 Additional paid-in stockholders’ equity 16.9 Retained earnings 7.0 Total $ 37.0 Total $ 37.0 a. What is the market debt-to-value ratio of the firm? b. What is University’s WACC?

Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $20 per...

Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $20 per share and has a beta of 0.7. There are 1 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and the firm’s tax rate is 21%.

BOOK-VALUE BALANCE SHEET
(Figures in $ millions)
Assets			Liabilities and Net Worth
Cash and short-term securities	$	3.0	Bonds, coupon = 7%, paid annually (maturity = 10 years, current yield to maturity = 9%)	$	10.0
Accounts receivable		5.0	Preferred stock (par value $20 per share)		3.0
Inventories		9.0	Common stock (par value $0.10)		0.1
Plant and equipment		20.0	Additional paid-in stockholders’ equity		16.9
			Retained earnings		7.0
Total	$	37.0	Total	$	37.0

a. What is the market debt-to-value ratio of the firm?

b. What is University’s WACC?

Jun 04, 2022

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Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $20 per...

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