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b. What is Universitys WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Examine the following book-value
b. What is Universitys WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $30 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.7. There are 1 million common shares outstanding. The market risk premium is 8%, the risk-free rate is 4%, and the firms tax rate is 40%.
BOOK-VALUE BALANCE SHEET | ||||||||
(Figures in $ millions) | ||||||||
Assets | Liabilities and Net Worth | |||||||
Cash and short-term securities | $ | 2.0 | Bonds, coupon = 6%, paid annually (maturity = 10 years, current yield to maturity = 7%) | $ | 10.0 | |||
Accounts receivable | 5.0 | Preferred stock (par value $10 per share) | 3.0 | |||||
Inventories | 9.0 | Common stock (par value $0.10) | 0.1 | |||||
Plant and equipment | 22.0 | Additional paid-in stockholders equity | 8.9 | |||||
Retained earnings | 16.0 | |||||||
Total | $ | 38.0 | Total
| $ | 38.0 | |||
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