Finance Assignment | Professional Writing

Problem 13-7 WACC (LO1) 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 2 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 8%, and the firm’s tax rate is 21%. Assets Cash and short-term securities $ 1.0 Accounts receivable 4.0 Inventories 8.0 Plant and equipment 24.0

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BOOK-VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 6%, paid annually (maturity = 10 years, current yield to maturity = 8%) Preferred stock (par value $20 per share) Common stock (par value $0.10) Additional paid-in stockholders’ equity Retained earnings Total $15.0 3.0 0.2 10.8 8.0 $37.0 $37.0 Total a. What is the market debt-to-value ratio of the firm? b. What is University’s WACC? (For all the requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) a. Se Market debt-to-value ratio WACC b.

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