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 2 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and the firms tax rate is 21%.
| 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 = 8%) | $ | 5.0 | |||
| Accounts receivable | 3.0 | Preferred stock (par value $15 per share) | 3.0 | |||||
| Inventories | 7.0 | Common stock (par value $0.20) | 0.4 | |||||
| Plant and equipment | 21.0 | Additional paid-in stockholders equity | 13.6 | |||||
| Retained earnings | 11.0 | |||||||
| Total | $ | 33.0 | Total | $ | 33.0 | |||
a. What is the market debt-to-value ratio of the firm?
b. What is Universitys WACC?
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
