Examine the following book-value balance sheet for Toys INC. The preferred stock currently sells for $30...

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Finance

Examine the following book-value balance sheet for Toys INC. Thepreferred stock currently sells for $30 per share and pays adividend of $3 a share. The common stock sells for $20 per shareand has a beta of 0.6. There are 3 million common sharesoutstanding. The market risk premium is 9%, the risk-free rate is5%, and the firm’s tax rate is 40%.
BOOK-VALUE BALANCE SHEET
(Figures in $ millions)
Assets Liabilities and NetWorth
Cash and short-termsecurities $ 2.0 Bonds, coupon = 8%, paidannually
(maturity = 10 years, current yield to maturity = 9%) $ 10.0
Accounts receivable 5.0 Preferred stock (par value $20per share) 3.0
Inventories 9.0 Common stock (par value$0.10) 0.3
Plant and equipment 26.0 Additional paid-in stockholders’equity 16.7
Retained earnings 12.0
Total $ 42.0 Total $ 42.0
a. What is the market debt-to-value ratio ofthe firm? (Do not round intermediate calculations. Enteryour answer as a percent rounded to 2 decimal places.)
b. What is Toys WACC? (Do not roundintermediate calculations. Enter your answer as a percent roundedto 2 decimal places.)

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4.5 Ratings (744 Votes)

a K N MVbook of debt Annual Coupon1 YTMk Par value1 YTMN k1 K 10 81001001 9100k 1001 910010 k1 9358 MV of equityPrice of equitynumber of shares outstanding MV of equity203000000 60000000 MV of BondPar valuebonds outstandingMV to book of See Answer

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Examine the following book-value balance sheet for Toys INC. Thepreferred stock currently sells for $30 per share and pays adividend of $3 a share. The common stock sells for $20 per shareand has a beta of 0.6. There are 3 million common sharesoutstanding. The market risk premium is 9%, the risk-free rate is5%, and the firm’s tax rate is 40%.BOOK-VALUE BALANCE SHEET(Figures in $ millions)AssetsLiabilities and NetWorthCash and short-termsecurities$2.0Bonds, coupon = 8%, paidannually(maturity = 10 years, current yield to maturity = 9%)$10.0Accounts receivable5.0Preferred stock (par value $20per share)3.0Inventories9.0Common stock (par value$0.10)0.3Plant and equipment26.0Additional paid-in stockholders’equity16.7 Retained earnings12.0Total$42.0Total$42.0a. What is the market debt-to-value ratio ofthe firm? (Do not round intermediate calculations. Enteryour answer as a percent rounded to 2 decimal places.)b. What is Toys WACC? (Do not roundintermediate calculations. Enter your answer as a percent roundedto 2 decimal places.)

BOOK-VALUE BALANCE SHEET
(Figures in $ millions)
Assets			Liabilities and NetWorth
Cash and short-termsecurities	$	2.0	Bonds, coupon = 8%, paidannually (maturity = 10 years, current yield to maturity = 9%)	$	10.0
Accounts receivable		5.0	Preferred stock (par value $20per share)		3.0
Inventories		9.0	Common stock (par value$0.10)		0.3
Plant and equipment		26.0	Additional paid-in stockholders’equity		16.7
			Retained earnings		12.0
Total	$	42.0	Total	$	42.0