Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currentlysells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of0.9. There are 2 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and thefirm's tax rate is 21%.AssetsCash and short-term securitiesAccounts receivableInventoriesPlant and equipment.Total$2.03.07.021.0$ 33.0a. Market debt-to-value ratiob. WACCBOOK VALUE BALANCE SHEET(Figures in $ millions)Liabilities and Net WorthBonds, coupon = 6%, paid annually (maturity = 10 years, current.yield to maturity = 8%)Preferred stock (par value $15 per share)Common stock (par value $0.20)Additional paid-in stockholders' equityRetained earningsTotala. 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 roundedto 2 decimal places.$10.03.00.413.66.0$ 33.0%%

A company's average after-tax cost of capital from all sources, including common stock, preferred…

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 $16 per share and has a beta of 0.9. There are 2 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, 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 21.0 $ 33.0 BOOK VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon 6%, paid annually (maturity = 10 years, current yield to maturity 8%) Preferred stock (par value $15 per share) Common stock (par value $0. 20) Additional paid-in stockholders' equity Retained earnings Total a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? $ 10.0 3.0 0.4 13.6 6.0 $ 33.0

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 $16 per share and has a beta of 0.9. There are 2 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, 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 21.0 $ 33.0 BOOK VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon 6%, paid annually (maturity = 10 years, current yield to maturity 8%) Preferred stock (par value $15 per share) Common stock (par value $0. 20) Additional paid-in stockholders' equity Retained earnings Total a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? $ 10.0 3.0 0.4 13.6 6.0 $ 33.0

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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The balance sheet for Larry Underwood Motors shows a book value of stockholders' equity (book value per share×total shares outstanding) of $1,332,000. Furthermore, the firm's income statement for the year just ended has a net income of $523,000, which is $0.251 per share of common stock outstanding. The price-earnings ratio for firms similar to Underwood Motors is 21.18. a. What price would you expect Underwood Motors shares to sell for? b. What is the book value per share for Underwood's shares?
The following financial information is available on Rawls Manufacturing Company: Current per share market price $48.00 Current per share dividend $3.50 Current per share earnings $6.00 Beta 1.1 Expected rate of return on market 12.0% Risk-free rate 6.0% Expected long-term growth rate 5.0% Rawls can issue new common stock to net the company $44 per share. Determine the cost of external equity capital using the dividend capitalization model approach. (Compute the answer to the nearest 0.1%.) a 12.6% b. 14.4% c.13.4% d.12.7%
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)?…
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CO A has cash flows of $0.76 per share, earnings of $1.25 per share and 115,000 shares outstanding. Co B. is a comparable public company with a price of $60 per share, cash flows of $2.14 per share, and 510,000 shares outstanding. If Co Bis a sufficiently comparable company, what do you estimate Co B. price per share to be? Assume: Risk free rate 4% Market risk premium 7% Cost of debt 4%, beta of debt is 0. Tax rate 23%
Flimsy Safe Room’s, Inc. has total assets of $1,000,000. The firm has $100,000 in inventory. It has $300,000 in long-term debt and $400,000 in current assets. The common stockholders’ equity is $400,000. The firm does not have any preferred stock outstanding. What is Flimsy Safe Room's total debt ratio defined as total liabilities to total assets? Question 1 options: A) 0.6 = 60% B) 0.4 = 40% C) 0.5 = 50% D) 0.3 = 30%
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Assume JUP has debt with a book value of $22 million, trading at 120% of par value. The firm has book equity of $25 million, and 2 million shares trading at $18 per share. What weights should JUP use in calculating its WACC? ..... A. 33.85% for debt, 66.15% for equity B. 29.62% for debt, 70.38% for equity C. 42.31% for debt, 57.69% for equity D. 38.08% for debt, 61.92% for equity

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