Examine the following book-value balance sheet for University Products, Inc. The preferred stock currently sells for $15 per share and the common stock for $20 per share.
BOOK VALUE BALANCE SHEET
(all values in millions) |
| Assets |
Liabilities and Net Worth |
| Cash and short-term securities |
$ |
2.0 |
Bonds, coupon = 8%, paid annually
(maturity = 10 years, current yield to
maturity = 9%) |
$ |
10.0 |
| Accounts receivable |
|
5.0 |
Preferred stock (par value $20 per
share) |
|
4.0 |
| Inventories |
|
9.0 |
Common stock (par value $0.1) |
|
0.3 |
| Plant and equipment |
|
26.0 |
Additional paid-in stockholders' equity |
|
16.7 |
|
|
|
Retained earnings |
|
11.0 |
|
|
|
|
|
|
| Total |
$ |
42.0 |
Total |
$ |
42.0 |
|
|
|
|
|
|
|
|
If the preferred stock pays a dividend of $2 per share, the beta of the common stock is 0.2, the market risk premium is 10%, the risk-free rate is 6%, and the firm's tax rate is 20%, what is University's weighted-average cost of capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Make sure to do proper rounding for each section before submitting answers!
|