Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259722615
Author: Richard A Brealey, Stewart C Myers, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Question
Chapter 13, Problem 7QP
a)
Summary Introduction
To compute: The debt to value ratio of the company.
b)
Summary Introduction
To compute: The WACC (weighted average cost of capital of the firm).
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Students have asked these similar questions
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 $16 per share and has a beta of 0.7. There are 1 million common shares outstanding. The market risk premium is 8%, the risk-free rate is 4%, 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 = 6%, paid annually(maturity = 10 years, current yield to maturity = 7%)
$
10.0
Accounts receivable
5.0
Preferred stock (par value $10 per share)
3.0
Inventories
9.0
Common stock (par value $0.10)
0.1
Plant and equipment
22.0
Additional paid-in stockholders’ equity
8.9
Retained earnings
16.0
Total
$
38.0
Total
$
38.0
a. What is the market debt-to-value ratio of the firm?
b. What is University’s…
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?
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 $16 per share and has a beta of 0.6. There are 3 million common shares
outstanding. The market risk premium is 10%, the risk-free rate is 6%, 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
5.0
Bonds, coupon = 78, paid annually
(maturity = 10 years, current yield to maturity = 8%)
Preferred stock (par value $10 per share)
$10.0
Accounts receivable
3.0
Inventories
Common stock (par value $0.10)
Additional paid-in stockholders' equity
Retained earnings
9.0
0.3
Plant and equipment
20.0
11.7
10.0
$35.0
$35.0
Total
Total
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…
Chapter 13 Solutions
Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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Similar questions
- 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 $16 per share and has a beta of 0.6. There are 3 million common shares outstanding. The market risk premium is 10%, the risk-free rate is 6%, 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 = 7%, paid annually(maturity = 10 years, current yield to maturity = 8%) $ 10.0 Accounts receivable 5.0 Preferred stock (par value $10 per share) 3.0 Inventories 9.0 Common stock (par value $0.10) 0.3 Plant and equipment 20.0 Additional paid-in stockholders’ equity 11.7 Retained earnings 10.0 Total $ 35.0 Total $ 35.0 a. What is the market debt-to-value ratio of the firm? b. What is University’s…arrow_forwardPrblmarrow_forwardWhat is the value of equity and debt?arrow_forward
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