PLEASE SEE ATTACHED SPREADSHEET

UMUC Inc. has the balance sheet as shown below.

Recently the yield on bonds similar to the ones that company has had dropped to 4.25%, so that the market value of the bonds is now about $313millionThe rate on company' short-term notes is equal the market's rate on these notes, which is 2.65%.a)What are the company's enterprise value and capital structure weights?

b)What is the company's cost of equity according to CAPM, if the U.S. T-bond yield is 2.45 %,the long-term market risk premium is 5.00% and the company's levered equity beta is 1.6?c)What is the company's WACC?

PROBLEM 3 UMUC Inc. has the balance sheet as shown below. Recently the yield on bonds similar to the ones that company has had dropped to 4.25%, so that the market value of the bonds is now about $313 million The rate on company' short-term notes is equal the market's rate on these notes, which is 2.65%. a) What are the company's enterprise value and capital structure weights? b) What is the company's cost of equity according to CAPM, if the U.S. T-bond yield is 2.45 %, the long-term market risk premium is 5.00% and the company's levered equity beta is 1.6? c) What is the company's WACC? Given 31-Jul-15 Balance Sheet Invested Capital (Book Values) (Market Values) Liabilities and Owners' Capital Current Liabilities Accounts payable Notes payable Other current liabilities` Total current liabilities Long-term debt (6.5% interest paid semiannually, due in 2017) Total liabilities Owners' Capital Common stock (at $1 par value per share) Paid-in-capital Accumulated earnings Total owners' capital Total liabilities and owners' capital US Treasury Bond Yield Estimated Market or Equity Risk Premium Current Share Price Market value of owners' equity Current yield on the firm's long-term debt Current yield on the firm's short-term notes Dollar value of short term notes outstanding Corporate tax rate $ $ 7,550,000 10,000,000 22,266,000 39,816,000 $ $ $ 300,000,000 $ 339,816,000 $ 312,812,197 322,812,197 $ 20,000,000 200,025,000 255,000,000 475,025,000 $ 814,841,000 $ 1,400,000,000 1,722,812,197 $ $ $ $ 10,000,000 10,000,000 2.45% 5.00% 70.00 4.25% 2.65% 10,000,000 35% Solution Your Score Maximu m 3 Your Score Maximu m 4 Your Score a) What are the company's enterprise value and capital structure weights? Maximu m Enterprise value = Market capitalization + Debt Notes payable / Enterprise Value Long-Term Debt / Enterprise Value Equity / Enterprise Value b. What is the company's cost of equity according to CAPM? After-Tax Cost of Sources of Capital Notes Payable (after-taxes) Long-term Debt (after-taxes) Levered equity beta Cost of Equity (using the CAPM) 1.60 c. What is company's WACC? Source of Capital Notes Payable Long-term Debt Equity Capital Structure Weight (Proportion) After-Tax Cost WACC Weighted After-Tax Cost 3 Solution Legend Value given in problem Formula/Calculation/Analysis required Qualitative analysis or Short answer required Goal Seek or Solver cell Score (filled by professor)