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Examine the following book-value balance sheet for University Products Inc. The preferred stock currently sells for...

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 0.9. There are 2 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, 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 $ 2.0 Bonds, coupon = 6%, paid annually
(maturity = 10 years, current yield to maturity = 8%)
$ 5.0
Accounts receivable 3.0 Preferred stock (par value $15 per share) 3.0
Inventories 7.0 Common stock (par value $0.20) 0.4
Plant and equipment 21.0 Additional paid-in stockholders’ equity 13.6
   Retained earnings 11.0
Total $ 33.0 Total $ 33.0

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.)

b. What is University’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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