Reference no: EM132853774

Using the balance sheet provided for Universal? Exports, determine the weighted average cost of capital. The? firm's tax rate is 40?%, the preferred stock pays a dividend of ?$0.20 per? share, the beta of the stock is 1.57?, the market risk premium is 5%, and the? risk-free rate is 3?%. Assume that the book value capital structure weights are the? company's optimal weights.

Universal Exports Balance Sheet? ($ millions)
Assets
Cash and? Short-Term Securities ?$3
Accounts Receivable 6
Inventories 5
Plant and Equipment 21
Total 35
Liabilities? & Owner's Equity
Bonds ?(12?% annual? coupon, 10?-year ?maturity, 11?% ?YTM) ?$12
Preferred Stock? (market price=?$4.1?) 3
Common Stock 20 Plant and Equipment 21
Total 35

a.What is the proportion of debt in the? firm's capital? structure, ωd?? (Round to two decimal? places.)

b.What is the proportion of preferred stock in the? firm's capital? structure, ωp?? ?(Round to two decimal? places.)

c.What is the proportion of common equity in the? firm's capital? structure, ωe?? ?(Round to two decimal? places.)

d.What is the? after-tax cost of debt for Universal? Exports? ?(Round to two decimal? places.)

e.What is the cost of preferred stock for Universal? Exports? ?(Round to two decimal? places.)

f.What is the cost of common equity for Universal? Exports? Note that the problem give us the amount of the market risk? premium, which is equal to (kM-kF). ?(Round to two decimal? places.)

g.What is the WACC for Universal? Exports? ?(Round to two decimal? places.)