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

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Examine the following book-value balance sheet for UniversityProducts Inc. The preferred stock currently sells for $30 per shareand pays a dividend of $3 a share. The common stock sells for $20per share and has a beta of 0.8. There are 1 million common sharesoutstanding. The market risk premium is 12%, the risk-free rate is8%, and the firm’s tax rate is 40%. BOOK-VALUE BALANCE SHEET(Figures in $ millions) Assets Liabilities and Net Worth Cash andshort-term securities $ 2.0 Bonds, coupon = 6%, paid annually(maturity = 10 years, current yield to maturity = 7%) $ 10.0Accounts receivable 5.0 Preferred stock (par value $10 per share)3.0 Inventories 9.0 Common stock (par value $0.40) 0.4 Plant andequipment 21.0 Additional paid-in stockholders’ equity 14.6Retained earnings 9.0 Total $ 37.0 Total $ 37.0
a. What is the market debt-to-value ratio of the firm?
b. What is University’s WACC?

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Answer aMarket debttovalue ratio of the firm 2428WorkingNumber of preferred stock Book value par value 3000000 10 300000Number of common stock Book value par See Answer

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Examine the following book-value balance sheet for UniversityProducts Inc. The preferred stock currently sells for $30 per shareand pays a dividend of $3 a share. The common stock sells for $20per share and has a beta of 0.8. There are 1 million common sharesoutstanding. The market risk premium is 12%, the risk-free rate is8%, and the firm’s tax rate is 40%. BOOK-VALUE BALANCE SHEET(Figures in $ millions) Assets Liabilities and Net Worth Cash andshort-term securities $ 2.0 Bonds, coupon = 6%, paid annually(maturity = 10 years, current yield to maturity = 7%) $ 10.0Accounts receivable 5.0 Preferred stock (par value $10 per share)3.0 Inventories 9.0 Common stock (par value $0.40) 0.4 Plant andequipment 21.0 Additional paid-in stockholders’ equity 14.6Retained earnings 9.0 Total $ 37.0 Total $ 37.0a. What is the market debt-to-value ratio of the firm?b. What is University’s WACC?