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 $10 per share and has a beta of 0.9. There are 4 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 Cash and short-term securities. $ 3.0 Accounts receivable. Inventories Plant and equipment Total 3.0 7.0 25.0 $ 38.0 a. Market debt-to-value ratio b. WACC BOOK-VALUE BALANCE SHEET (Figures in 5 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 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. $ 10.0 3.0 0.4 7.6 17.0 $ 38.0 % %
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 $10 per share and has a beta of 0.9. There are 4 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 Cash and short-term securities. $ 3.0 Accounts receivable. Inventories Plant and equipment Total 3.0 7.0 25.0 $ 38.0 a. Market debt-to-value ratio b. WACC BOOK-VALUE BALANCE SHEET (Figures in 5 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 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. $ 10.0 3.0 0.4 7.6 17.0 $ 38.0 % %
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 13P
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