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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 $16 per share and has a beta of .6. There are 3 million common shares outstanding. The market risk premium is 10%, the risk-free rate is 6%, and the firm’s tax rate is 40%. BOOK-VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short-term securities $ 1.0 Bonds, coupon = 7%, paid annually (maturity = 10 years, current yield to maturity = 8%) $ 10.0 Accounts receivable 5.0 Preferred stock (par value $10 per share) 3.0 Inventories 9.0 Common stock (par value $.10) .3 Plant and equipment 20.0 Additional paid-in stockholders’ equity 11.7 Retained earnings 10.0 Total $ 35.0 Total $ 35.0 a. 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.) Market debt ratio % b. What is University’s WACC?
Zero-coupon bond with a par value of $1000, maturity of 5 years is traded for $630,12. Is it reasonable to invest in this bond, if investor considers the alternative investment with 12% annual return?
incremental cash flowsnbsp1. it is 1995 and food for less ffl a grocery store is considering offering one hour photo
Also choose examples from your own experience or find appropriate cases on the web that you can discuss. Credit will be given for references you make to relevant examples from real companies
Determinants of Interest Rate for Individual Securities A particular security's default risk premium is 3.00 percent. For all securities, the inflation risk premium is 1.75 percent and the real interest rate is 2.75 percent. The security's liquidity ..
A firm has 12,000 shares of common stock outstanding with a book value of $20 per share and a market value of $39. There are 5,000 shares of preferred stock with a book value of $10 and a market value of $26. There is a $400,000 face value bond issue..
Phil owed Ralph $5,000 on a personal loan. Phil failed to repay the loan at the agreed time. One day while Phil was sitting in a restaurant with a group of friends, Ralph approached him and accused him of being a "deadbeat and a lazy crook". Ralph th..
Stacie wants to buy a new car. She has the option of buying the car for $35,000 with no money down and 1% financing for three years or get a cash discount of $4,000. She car get financing at the local bank for 4% per year. Compute her total expenses ..
What is the internal rate of return for the following project: an initial outlay of $10,500 resulting in a single cash inflow of $20,462 in 7 years?
A stock has a beta of 1.2 and an expected return of 11.8 percent. A risk-free asset currently earns 3.8 percent. (SHOW YOUR WORK) What is the expected return on a portfolio that is equally invested in the two assets? If a portfolio of the two assets ..
The dividend for Should I, Inc., is currently $1.4 per share. It is expected to grow at 16 percent next year and then decline linearly to a 4 percent perpetual rate beginning in four years. If you require a 22 percent return on the stock, what is the..
Assume that the company uses cumulative voting and there are three seats in the current election; how much will it cost you to buy a seat now?
Changes in the net working capital: A. can affect the cash flows of a project every year of the project's life. B. only affect the initial cash flows of a project. C. are included in project analysis only if they represent cash outflows. D. are gener..
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