Question
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
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 $16 per share and has a beta of 0.9. There are 3 million common shares outstanding. The market risk premium is 10%, the risk-free rate is 6%, and the firms 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=8%, paid annually (maturity=10 years, current yield to maturity=9%) $20.0 Accounts receivable 3.0 ---Preferred stock (par value $15 per share) 3.0
Inventories 7.0 ---Common stock (par value $0.10) 0.3
Plant and equipment 21.0 ---Additional paid-in stockholders equity 5.7
----------------------------------------Retained earnings 5.0
Total $ 34.0 -----------------------Total $ 34.0
a. What is the market debt-to-value ratio of the firm?
b. What is Universitys WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
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