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Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells...

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Finance

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 $20 per share and has a beta of 0.7. There are 1 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and the firms tax rate is 21%.

BOOK-VALUE BALANCE SHEET
(Figures in $ millions)
Assets Liabilities and Net Worth
Cash and short-term securities $ 3.0 Bonds, coupon = 7%, paid annually (maturity = 10 years, current yield to maturity = 9%) $ 10.0
Accounts receivable 5.0 Preferred stock (par value $20 per share) 3.0
Inventories 9.0 Common stock (par value $0.10) 0.1
Plant and equipment 20.0 Additional paid-in stockholders equity 16.9
Retained earnings 7.0
Total $ 37.0 Total $ 37.0

a. What is the market debt-to-value ratio of the firm?

b. What is Universitys WACC?

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