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Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $2
Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $2 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 10%, the risk-free rate is 6%, and the firms tax rate is 21%.
What is the market debt-to-value ratio of the firm?
What is Universitys WACC?
BOOK-VALUE BALANCE SHEET | |||
(Figures in $ millions) | |||
Assets | Liabilities and Net Worth | ||
---|---|---|---|
Cash and short-term securities | $ 1.0 | Bonds, coupon = 8%, paid annually (maturity = 10 years, current yield to maturity = 9%) | $ 10.0 |
Accounts receivable | 3.0 | Preferred stock (par value $20 per share) | 2.0 |
Inventories | 7.0 | Common stock (par value $0.10) | 0.1 |
Plant and equipment | 21.0 | Additional paid-in stockholders equity | 9.9 |
Retained earnings | 10.0 | ||
Total | $ 32.0 | Total | $ 32.0 |
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