Examine the following book-value balance sheet for University Products Inc. The

Question

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 .6. There are 1 million common shares outstanding. The market risk premium is 11%, the risk-free rate is 7%, and the firm’s tax rate is 40%.

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.)

What is University’s WACC?

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 .6. There are 1 million common shares outstanding. The market risk premium is 11%, the risk-free rate is 7%, and the firm’s tax rate is 40%.

Explanation / Answer

Answer:a Debt to value=9.26/22.26=41.60%

Answer:b

Preferred stock current price $     30.00 Common stock current price $     20.00 Bond Coupon 5% Bond par value $1,000.00 Maturity 10.00 years Current yield to maturity 6% Preferred stock par value $     10.00 Common stock par value $      0.20 Common shares outstanding          1.00 million Preferred stock dividend $      3.00 Common stock beta          0.60 Market risk premium 11% Risk-free rate 7% Tax Rate 40%

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