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 8%, the risk-free rate is 4%, and the firm's tax rate is 21%. Assets BOOK-VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 8%, paid annually Cash and short-term securities $ 1.0 Accounts receivable 3.0 Inventories 7.0 (maturity 10 years, current yield to maturity Preferred stock (par value $10 per share) Common stock (par value $0.10) =9% ) $ 5.0 3.0 0.3 Plant and equipment 25.0 Additional paid-in stockholders' equity Retained earnings 16.7 11.0 $36.0 $36.0 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.) a. Market debt-to-value ratio b. WACC % %
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 8%, the risk-free rate is 4%, and the firm's tax rate is 21%. Assets BOOK-VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 8%, paid annually Cash and short-term securities $ 1.0 Accounts receivable 3.0 Inventories 7.0 (maturity 10 years, current yield to maturity Preferred stock (par value $10 per share) Common stock (par value $0.10) =9% ) $ 5.0 3.0 0.3 Plant and equipment 25.0 Additional paid-in stockholders' equity Retained earnings 16.7 11.0 $36.0 $36.0 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.) a. 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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Transcribed Image Text: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 8%, the risk-free rate is 4%, and the firm's tax rate is 21%.
Assets
BOOK-VALUE BALANCE SHEET
(Figures in $ millions)
Liabilities and Net Worth
Bonds, coupon = 8%, paid annually
Cash and short-term securities $ 1.0
Accounts receivable
3.0
Inventories
7.0
(maturity 10 years, current yield to maturity
Preferred stock (par value $10 per share)
Common stock (par value $0.10)
=9% ) $ 5.0
3.0
0.3
Plant and equipment
25.0
Additional paid-in stockholders' equity
Retained earnings
16.7
11.0
$36.0
$36.0
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.)
a.
Market debt-to-value ratio
b.
WACC
%
%
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