earch 100% + & 5) Cost of Capital (20 points, 20 minutes) Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $18 per share and pays a dividend of $3 a share. The common stock sells for $25 per share and has a beta of 0.9. There are 1 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 7%, and the firm's tax rate is 21%. O Book-Value Balance Sheet (Figures in $ millions) Assets Liabilities Bonds, coupon = 7%, paid annually Cash and short-term securities 2 = (maturity 12 years, current yield to maturity=10%) 10 Accounts receivable Inventories Plant and equipment 2 Preferred stock (par value $20 per share) 2 8 25 Common stock (par value $0.10) Additional paid-in stockholders' equity 0.1 9.9 Retained earnings 15 Total 37 Total 37 a. What are the market value of debt-to-value, equity-to-value and preferred share-to-value ratios of the firm? b. What are the cost of debt, cost of equity and cost of preferred shares to this firm? c. Suppose that you wish to find the NPV of a project that has the same risk as the firm. The project will be financed through the same financing mix of the firm. Which discount rate would you use in your PV calculations? II 18 31F Mostly sunny 9:14 AM 1/17/2022