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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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