What is the market debt-to-value ratio of the firm

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Reference no: EM132048466

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 $20 per share and has a beta of .7. There are 2 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%)	$	5.0
Accounts receivable		4.0	Preferred stock (par value $10 per share)		3.0
Inventories		8.0	Common stock (par value $.10)		.2
Plant and equipment		24.0	Additional paid-in stockholders' equity		17.8
			Retained earnings		11.0

Total	$	37.0	Total	$	37.0

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? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

WACC %

Reference no: EM132048466

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