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 $20 per share and has a beta of 0.7. There are 2 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 8%, and the firm's tax rate is 21%. Assets Cash and short-term securities Accounts receivable Inventories Plant and equipment Total $2.0 3.0 7.0 25.0 $37.0 BOOK-VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 5%, paid annually (maturity = 10 years, current yield to maturity = 7%) Preferred stock (par value $20 per share) Common stock (par value $0.10) Additional paid-in stockholders' equity Retained earnings Total $10.0 3.0 0.2 11.8 12.0 $37.0 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.)

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 $20 per share and has a beta of 0.7. There are 2 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 8%, and the firm's tax rate is 21%. Assets Cash and short-term securities Accounts receivable Inventories Plant and equipment Total $2.0 3.0 7.0 25.0 $37.0 BOOK-VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 5%, paid annually (maturity = 10 years, current yield to maturity = 7%) Preferred stock (par value $20 per share) Common stock (par value $0.10) Additional paid-in stockholders' equity Retained earnings Total $10.0 3.0 0.2 11.8 12.0 $37.0 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.)

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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Given the following information for Dicey Corporation, find the WACC. Assume the company's tax rate is 21 percent. Debt: 10000 corporate bonds, 7.6 percent coupon bonds outstanding. S1,000 par valuc, 18 years to maturity, selling for 102 percent of par, the bonds make semiannual payments. Common stock: 300,000 shares outstanding, selling for $58 per share, beta is 1.36. Preferred stock: 6,000 shares of $8.50 preferred stock outstanding, currently selling for $73 per share. Market: 8.3 percent market risk premium and 3.5 percent risk-free rate. Answer: WACC =
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 2 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 8%, and the firm's tax rate is 21%. BOOK-VALUE BALANCE SHEET Liabilities and Net Worth (Figures in s millions). Assets Cash and short-term securities $ 1.0 Bonds, coupon = 6%, paid annually (maturity = 10 years, current yield to maturity = 8%) $ 10.0 Accounts receivable 4.0 Preferred stock (par value $20 per share) 3.0 Inventories Plant and equipment 8.0 24.0 Common stock (par value $0.10) 0.2 Additional paid-in stockholders' equity Retained earnings 10.8 13.0 Total $ 37.0 Total $ 37.0 a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? Note: For all the requirements, do not round intermediate calculations. Enter your…
BQ, Incorporated, is considering making an offer to purchase iReport Publications. The vice president of finance has collected the following information: BQ iReport Price-earnings ratio 12.2 8.8 Shares outstanding 1,500,000 165,000 Earnings $ 4,600,000 $ 680,000 Dividends $ 960,000 $ 410,000 BQ also knows that securities analysts expect the earnings and dividends of iReport to grow at a constant rate of 4 percent each year. BQ management believes that the acquisition of iReport will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year. a. What is the value of iReport to BQ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What would BQ’s gain be from this acquisition? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If BQ were to offer $36 in cash for each share of iReport, what would the…
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3. (a): The stock price for Bank Muscat was OMR 100 per share one year ago. The stock is currently trading at OMR 92 per share. Shareholders just received OMR 20 as dividend. Calculate the "Return" was earned over the past year? (b): First find W, and then calculate the "Weighted average" cost of capital of a Company from the following table details: Capital Component Amount WCost Debt Preferred Stock Common Stock 40,000 5% 30,000 6% 50,000 4%
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Consider the following book value balance sheet of ABC, in which all figures are in million dollars. The preferred stock currently sells for $15 per share and the common stock for $20 per share. There are 1 million common shares outstanding. Assets Liabilities and Net Worth Cash and short-term securities $1 Bonds with coupon rate of 8% paid annualy, maturity of 10 years and the current yield to maturity of 9% $10 Account receivables $3 Preferred stock (par value $10 per share) $2 Inventories $7 Common stock $10 Plant and equipment $21 Retained earnings $10 Total $32 $32 a) What is the capital structure of the firm based on market values? b) The preferred stock pays a dividend of $2 per share, the beta of the common stock is 1.5, the market risk premium is 7%, the risk-free rate is 4%, and the firm’s tax rate is 40%. ABC’s bonds have coupon rate of 6%, and currently are trading at par. What is the firm’s weighted average cost of capital (WACC)?…
Let's go back to the Double-R Nutting Company. Suppose that Double-R's bonds have a face value of $61. Its current market-value balance sheet is: Assets Book-Value Balance Sheet Liabilities and Equity Net working capital Fixed assets $ 75 Bonds outstanding $ 80 65 Common stock 60 Total assets $ 140 Total liabilities and shareholders' equity $ 140 Who would gain or lose from the following maneuvers? a. Double-R pays a $65 cash dividend. b. Double-R halts operations, sells its fixed assets for $17, and converts net working capital into $75 cash. It invests its $92 in Treasury bills. c. Double-R encounters an investment opportunity requiring a $65 initial investment with NPV = $0. It borrows $65 to finance the project by issuing more bonds with the same security, seniority, and so on, as the existing bonds. d. Double-R finances the investment opportunity in part (c) by issuing more common stock. Stockholders a. b. C. d. Bondholders
McCann Catching, Inc. has 3.00 million shares of stock outstanding. The stock currently sells for $12.79 per share. The firm's debt is publicly traded and was recently quoted at 89.00% of face value. It has a total face value of $19.00 million, and it is currently priced to yield 10.00%. The risk free rate is 3.00% and the market risk premium is 8.00%. You've estimated that the firm has a beta of 1.20. The corporate tax rate is 34.00%. The firm is considering a $45.89 million expansion of their production facility. The project has the same risk as the firm overall and will earn $11.00 million per year for 7.00 years. What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)
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Suppose Beta Industries and Delta Technology have identical assets that generate identical cash flows. Beta Industries is an all-equity firm, with 7 million shares outstanding that trade for a price of $16.00 per share. Delta Technology has 22 million shares outstanding, as well as debt of $33.60 million. a. According to MM Proposition I, what is the stock price for Delta Technology? b. Suppose Delta Technology stock currently trades for $8.27 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity? a. According to MM Proposition I, what is the stock price for Delta Technology? According to MM Proposition I, the stock price per share for Delta Technology is $ (Round to the nearest cent.)

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