Question

Saved Help Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $30 per share and pays a dividend of $3 a share. The common stock sells for $20 per share and has a beta of 0.8. There are 2 million common shares outstanding. The market risk premium is 8% , the risk-free rate is 4%, and the firm's tax rate is 40%. BOOK-VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon 58, paid annually (maturity 10 years, current yield to maturity Preferred stock (par value $15 per share) Common stock (par value $0.20) Additional paid-in stockholders equity Assets Cash and short-term securities $ 3.0 6.0 78) $20.0 3.0 Accounts receivable Inventories Plant and equipment 0.4 10.0 23.0 11.6 7.0 Retained earnings $42.0 $42.0 Total Total a. What is the market debt-to-value ratio of the firm? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) % Market debt-to-value ratio b. What is University's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC 5 of 10 Next > Prev

Answer 1

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File Home Insert Page Layout Formulas Data Review View Add-Ins Cut Ea Copy - AutoSum General A A Wrap Text Calibri 11 Fill A Merge & Center Conditional Format Insert Delete Format Paste Cell Sort & Find & S % , 2 Clear Format Painter er Select Formatting ble Styles Clipboard Font Alignment Number Shules Cells Editing KF179 кс КI КК KР ко КЕ KI KG Кн KI KL KM KN 179 180 181 UNIVERSITY PRODUCTS 182 CALCULATION OF VALUE OF DEBT 183 184 COUPON 5% PAR VALUE 20 185 COUPON(S) 186 1 187 79% YTM 188 YEARS TO MATURITY 10 17.1906 [-PV(KG77,KG78,-KG76,-KG75)] 189 MARKET VALUE 190 191 MARKET VALUE OF DEBT 17.1906 MARKET VALUE OF EQUITY 40 [2X 20] [(3/15 30 192 193 MARKET VALUE OF PREFERRED STOCK 63.1906 194 TOTAL VALUE 195 DEBT TO VALUE 27.20% [17.1906/63.1906] 196 a port future INDEX DIR right RESI ex d UTILITY, SHARPE, beta bond covexity LEASING PV, FV, ANNUITY cap stru WACC 13086 KE CAPM DGM INTL CAP BUD clean YIELD bond portfolio Re erences: CF493 09:53 W ENG 10-06-2019

File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum General A A Wrap Text Calibri 11 Fill Copy A Merge & Center Conditional Format Insert Delete Format Paste BIU Cell Sort & Find & 2 Clear Format Painter er Select Formatting ble Styles Clipboard Font Alignment Number Shules Cells Editing KJ213 KC KI KK KP KD KE KP KG KH K KL KM KN 197 198 Rm-Rf MARKET RISK PREMIUM =8% 199 COST OF EQUITY Rf RISK FREE RATE 4% 200 Rf +beta(Rm-Rf) ke = 201 202 ke 4% +0.8(8%) ke = 10.40% 203 204 205 COST OF PREFERRED STOCK kp DIVIDEND/PRICE 3.00/30.00 206 kp= 207 kp 208 10.00% 209 COST OF DEBT (AFTER TAX) 210 YTM(1-t)7%*(1-0.40) 211 kd 4.20% 212 213 214 b WACC CALCULATION WEIGHTS COc (%) WEIGHTED COST 215 MARKET VALUE port future INDEX LEASINGPV, FV, ANNUITY DIR right RESI ex di UTILITY, SHARPE, beta bond covexity DGM KE CAPM INTL CAP BUD dean YIELD bond portfolo stru WACC 130% Re erences: CF493 09:53 ENG 10-06-2019

File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum General A A Wrap Text Calibri 11 Fill Copy A- Merge & Center Conditional Format Insert Delete Format Paste BIU Cell Sort & Find & 2 Clear Format Painter er Select Formatting ble Styles Clipboard Font Alignment Number Shules Cells Editing KE224 ко KI КК KР КГ KE КР KG Кн KI KL KM KN 213 214 b WACC CALCULATION MARKET VALUE WEIGHTS COC (%) WEIGHTED COST 215 216 A c B*C 217 DEBT 17.1906 0.2720 4,20% 1.14% 218 PREFERRED STOCK 6 0.0950 10.00% 0.95% 0,6330 10.40% 6,58% 219 COMMON STOCK 40 63.1906 220 221 WACC= 8.68% 222 223 224 225 226 227 228 229 230 231 PV, FV, ANNUITYDIR right RESI ex di UTILITY, SHARPE, beta bond covexty DGM LEASING port future INDEX YIELD bond portfolo KE CAPM INTL CAP BUD clean stru WACC 13086 Re erences: CF493 09:54 ENG 10-06-2019