Baghiben Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share andpays 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 sharesoutstanding. The market risk premium is 8%, the risk-free rate is 4%, and the firm's tax rate is 21%.AssetsBOOK-VALUE BALANCE SHEET(Figures in $ millions)Liabilities and Net WorthBonds, coupon = 8%, paid annuallyCash and short-term securities $ 1.0Accounts receivable3.0Inventories7.0(maturity 10 years, current yield to maturityPreferred stock (par value $10 per share)Common stock (par value $0.10)=9% ) $ 5.03.00.3Plant and equipment25.0Additional paid-in stockholders' equityRetained earnings16.711.0$36.0$36.0TotalTotala. 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 rounded to 2 decimal places.)a.Market debt-to-value ratiob.WACC%%

Step 1 a) Market Value of Preferred Stock = Market price per Preferred Stock * (Preferred Stock /…

Answered: Examine the following book-value…

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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Question

Baghiben

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 8%, the risk-free rate is 4%, and the firm's tax rate is 21%.
Assets
BOOK-VALUE BALANCE SHEET
(Figures in $ millions)
Liabilities and Net Worth
Bonds, coupon = 8%, paid annually
Cash and short-term securities $ 1.0
Accounts receivable
3.0
Inventories
7.0
(maturity 10 years, current yield to maturity
Preferred stock (par value $10 per share)
Common stock (par value $0.10)
=9% ) $ 5.0
3.0
0.3
Plant and equipment
25.0
Additional paid-in stockholders' equity
Retained earnings
16.7
11.0
$36.0
$36.0
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 rounded to 2 decimal places.)
a.
Market debt-to-value ratio
b.
WACC
%
%

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