Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share andpays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.6. There are 3 million common sharesoutstanding. The market risk premium is 10%, the risk-free rate is 6%, and the firm's tax rate is 21%.BOOK-VALUE BALANCE SHEET(Figures in $ millions)AssetsLiabilities and Net WorthCash and short-term securities $ 1.05.0Bonds, coupon = 78, paid annually(maturity = 10 years, current yield to maturity = 8%)Preferred stock (par value $10 per share)$10.0Accounts receivable3.0InventoriesCommon stock (par value $0.10)Additional paid-in stockholders' equityRetained earnings9.00.3Plant and equipment20.011.710.0$35.0$35.0TotalTotala. 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.)а.Market debt-to-value ratiob.WACC

Market value is calculated by present value of cash flows from the debt issued at given yield to…

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.) Market debt-to-value ratio b. WACC %

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.) Market debt-to-value ratio b. WACC %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

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 $16 per share and has a beta of 0.6. There are 3 million common shares
outstanding. The market risk premium is 10%, the risk-free rate is 6%, and the firm's tax rate is 21%.
BOOK-VALUE BALANCE SHEET
(Figures in $ millions)
Assets
Liabilities and Net Worth
Cash and short-term securities $ 1.0
5.0
Bonds, coupon = 78, paid annually
(maturity = 10 years, current yield to maturity = 8%)
Preferred stock (par value $10 per share)
$10.0
Accounts receivable
3.0
Inventories
Common stock (par value $0.10)
Additional paid-in stockholders' equity
Retained earnings
9.0
0.3
Plant and equipment
20.0
11.7
10.0
$35.0
$35.0
Total
Total
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.)
а.
Market debt-to-value ratio
b.
WACC

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