Look at the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $2 a share. The common stock sells for $20 per share and has a beta of .8. There are 1 million common shares outstanding. The market risk premium is 10%, the risk-free rate is 6%, and the firm?s tax rate is 21%.

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

b. What is University?s WACC?

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BOOK-VALUE BALANCE SHEET (Flgures In $ mllllons) Llablitles and Net Worth Assets $ 1 Bonds, coupon = 8%, pald annually Cash and short-term securitles (maturity = 10 years, current yleld to maturity = 9%) $10 Accounts recelvable Inventorles Plant and equlpment Preferred stock (par value $20 per share) Common stock (par value $.10) 0.1 9.9 10 $32 Additional pald-in stockholders' equlty 21 Retalned earnlngs $32 Total