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 (Figures in $ millions) Assets Liabilities and Net Worth 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 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 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 (Figures in $ millions) Assets Liabilities and Net Worth 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 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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![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 answers as a percent rounded to 2 decimal
places.
a. Market debt-to-value ratio
b. WACC
%
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd3e44652-f316-4477-abc1-8b19c6ff2280%2Fbcb65fda-3b1e-45db-8306-4549989223af%2Fgeaetlg_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 answers as a percent rounded to 2 decimal
places.
a. Market debt-to-value ratio
b. WACC
%
%
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