Question
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 $3
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 $3 a share. The common stock sells for $20 per share and has a beta of 0.7. There are 1 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 | $ 3.0 | Bonds, coupon = 7%, paid annually (maturity = 10 years, current yield to maturity = 9%) | $ 10.0 |
| Accounts receivable | 5.0 | Preferred stock (par value $20 per share) | 3.0 |
| Inventories | 9.0 | Common stock (par value $0.10) | 0.1 |
| Plant and equipment | 20.0 | Additional paid-in stockholders equity | 16.9 |
| Retained earnings | 7.0 | ||
| Total | $ 37.0 | Total | |
- What is the market debt-to-value ratio of the firm?
- What is Universitys WACC?
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Recent Advances In Computational Finance
Authors: Nikolaos S. Thomaidis, Jr. Dash, Gordon H.
1st Edition
1626181233, 978-1626181236
