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 $20 per share and has a beta of 0.8. There are 1 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 8%, and the firms tax rate is 21%.
Assets Cash and short-term securities $ 2.0 Accounts receivable 5.0 Inventories 9.0 Plant and equipment 21.0 BOOK-VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 6%, paid annually (maturity = 10 years, current yield to maturity = 7) Preferred stock (par value $10 per share) Common stock (par value $0.40) Additional paid-in stockholders' equity Retained earnings Total $10.0 3.0 0.4 14.6 9.0 $37.0 Total $37.0 a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Market debt-to-value ratio WACC 32.03 9.78 % % % b. a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Market debt-to-value ratio WACC 27.51 14.60 X % % b. a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Market debt-to-value ratio WACC 27.50 17.60 % % b. Assets Cash and short-term securities $ 2.0 Accounts receivable 5.0 Inventories 9.0 Plant and equipment 21.0 BOOK-VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 6%, paid annually (maturity = 10 years, current yield to maturity = 7) Preferred stock (par value $10 per share) Common stock (par value $0.40) Additional paid-in stockholders' equity Retained earnings Total $10.0 3.0 0.4 14.6 9.0 $37.0 Total $37.0 a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Market debt-to-value ratio WACC 32.03 9.78 % % % b. a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Market debt-to-value ratio WACC 27.51 14.60 X % % b. a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Market debt-to-value ratio WACC 27.50 17.60 % % b
