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 % %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 2P

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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 $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 a. Market debt-to-value ratio b. WACC 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? Note: For all the requirements, do not round intermediate calculations. Enter…
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 $ 2.0 Bonds, coupon = 5%, paid annually (maturity = 10 years, current yield to maturity = 7% ) $ 10.0 Accounts receivable 3.0 Preferred stock (par value $20 per share) 3.0 Inventories 7.0 Common stock (par value $0.10) 0.2 Plant and equipment 25.0 Additional paid - in stockholders' equity 11.8 Retained earnings 12.0 Total $ 37.0 Total $ 37.0 What is the market debt- to-value ratio of the firm? What is University's WACC?
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