Baghiben The table below shows a book balance sheet for the Wishing Well Motel chain. The company's long-term debt is secured by its realestate assets, but it also uses short-term bank loans as a permanent source of financing. It pays 10% interest on the bank debt and 9%interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $90 per share. The expected returnon Wishing Well's common stock is 18%. (Table figures in $ millions.)Cash and marketable securitiesAccounts receivableInventoryCurrent assetsReal estateOther assetsTotal$ 10020050$ 3502,100150Bank loan.Accounts payableCurrent liabilities$ 280120$ 400Long-term debt$ 2,600EquityTotal1,800400$ 2,600Calculate Wishing Well's WACC. Assume that the book and market values of Wishing Well's debt are the same. The marginal tax rate is21%.Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.Weighted-average cost of capital%

Total market value of Wishing Well = Market Value of long term debt + Market Value of bank loan +…

Answered: The table below shows a book balance…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 20P

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The table below shows a book balance sheet for the Wishing Well Motel chain. The company's long-term debt is secured by its real estate assets, but it also uses short-term bank loans as a permanent source of financing. It pays 13% interest on the bank debt and 11% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $85 per share. The expected return on Wishing Well's common stock is 18%. (Table figures in $ millions.) $ 130 $ 270 Bank loan Cash and marketable securities 170 Accounts payable Accounts receivable 290 $ 440 Inventory Current liabilities 50 $ 2,400 470 Current assets Long-term debt Equity 2,150 Real estate 400 120 Other assets $ 2,990 $ 2,990 Total Total Calculate Wishing Well's WACC. Assume that the book and market values of Wishing Well's debt are the same. The marginal tax rate is 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) Weighted-average cost of capital
The table below shows a book balance sheet for the Wishing Well Motel chain. The company's long-term debt is secured by its real estate assets, but it also uses short-term bank loans as a permanent source of financing. It pays 13% interest on the bank debt and 10% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $82 per share. The expected return on Wishing Well's common stock is 21%. (Table figures in $ millions.) Cash and marketable securities 24 Bank loan $4 100 270 Accounts payable Accounts receivable 130 170 Current liabilities Inventory 50 400 Current assets 320 Long-term debt Equity Real estate 1,800 1,440 Other assets 120 400 $ 2,240 $ 2,240 Total Total Calculate Wishing Well's WACC. Assume that the book and market values of Wishing Well's debt are the same. The marginal tax rate is 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) Weighted-average cost of capital
The table below shows a book balance sheet for the Wishing Well Motel chain. The company’s long-term debt is secured by its real estate assets, but it also uses short-term bank loans as a permanent source of financing. It pays 11% interest on the bank debt and 9% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $89 per share. The expected return on Wishing Well’s common stock is 22%. (Table figures in $ millions.) Cash and marketable securities $ 170 Bank loan $ 310 Accounts receivable 330 Accounts payable 180 Inventory 50 Current liabilities $ 490 Current assets $ 550 Real estate 2,600 Long-term debt 2,400 Other assets 140 Equity 400 Total $ 3,290 Total $ 3,290 Calculate Wishing Well’s WACC. Assume that the book and market values of Wishing Well’s debt are the same. The marginal tax rate is 21%. (Do not round intermediate calculations. Enter your answer as a…
Chunky Cheese Pizza has $61.9 million in bonds payable. The bond indenture states that the debt to equity ratio cannot exceed 3.22. Chunky’s total assets are $201.9 million, and its liabilities other than the bonds payable are $91.9 million. The company is considering some additional financing through leasing. 1. Calculate total stockholders’ equity using the balance sheet equation. (Enter your answers in millions. (i.e., $5,500,000 should be entered as 5.5).) Stockholders’ Equity =
Ivanhoe Network Associates has a current ratio of 1.60, where the current ratio is defined as follows: current ratio = current assets/current liabilities. The firm's current assets are equal to $1,236,000, its accounts payable are $422,000, and its notes payable are $350,000. Its inventory is currently at $ 724,000. The company plans to raise funds in the shot - term debt market and invest the entire amount in additional inventory. How much can notes payable increase without the current ratio falling below 1.50?
Thrillville has $41 million in bonds payable. One of the contractual agreements in the bond is that the debt to equity ratio cannot exceed 2.0. Thrillville’s total assets are $81 million, and its liabilities other than the bonds payable are $11 million. The company is considering some additional financing through leasing.Required:1. Calculate total stockholders’ equity using the balance sheet equation.2. Calculate the debt to equity ratio.3. The company enters a lease agreement requiring lease payments with a present value of $16 million. Record the lease.4. Will entering into the lease cause the debt to equity ratio to be in violation of the contractual agreement in the bond? Determine your answer by calculating the debt to equity ratio after recording the lease.
A DI has the following balance sheet (in millions). Assets: Cash=9$ ; Loans=95 ; Securities= 26; total assets=130 Liabilities and equity: deposits= 75; purchased funds= 40; equity=15 ; total liabilites and equity= 130 The DI’s securities portfolio includes $16 million in T-bills and $10 million in GNMA securities. The DI has a $20 million line of credit to borrow in the repo market and $5 million in excess cash reserves (above reserve requirements) with the Fed. The DI currently has borrowed $22 million in Fed funds and $18 million from the Fed discount window to meet seasonal demands. 1) What is the DI’s total available (sources of) liquidity? 2) What is the DI’s current total uses of liquidity? 3) What is the net liquidity of the DI? 4) Calculate the financing gap. 5) What is the financing requirement? 6) The DI expects a net deposit drain of $20 million. Show the DI's balance sheet if the following conditions occur: a. The DI purchases liabilities to offset this expected drain. b.…
Broom Co. has a total debt of $420,000 and shareholders’ equity of $700,000. Broom is seeking capital to fund an expansion. Broom is planning to issue an additional $300,000 in common stock, and is negotiating with a bank to borrow additional funds. The bank is requiring a debt-to-equity ratio of 0.75. what is the maximum additional amount Broom will be able to borrow?
Suppose that Backwoods Chemical's book balance sheet is: Backwoods Chemical Company (Book Values) Debit Net working capital Net fixed assets $ 400 1,600 Total assets $ 2,000 $ 1,000 1,000 $ 2,000 Credit Debt Equity (net worth) Total value The debt has a one-year maturity and a promised interest payment of 9%. Thus, the promised payment to Backwoods's creditors is $1,090. The market value of the assets is $1,200, and the standard deviation of asset value is 45% per year. The risk-free interest rate is 9%. Calculate the value of Backwoods's debt and equity. Note: Do not round intermediate calculations. Round your answers to the nearest whole number. Value of equity Value of debt
The following table gives the current balance sheet for Travellers Inn Inc. (TII), a company that was formed by merging a number of regional motel chains. The following facts also apply to TII.(1) The long-term debt consists of 29,412 bonds, each having a 20-year maturity, semiannual payments, a coupon rate of 7.6%, and a face value of $1,000. Currently, these bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold, they would have an 11.8% yield to maturity.(2) TII’s perpetual preferred stock has a $100 par value, pays a quarterly dividend per share of $2, and has a yield to investors of 10%. New perpetual preferred stock would have to provide the same yield to investors, and the company would incur a 3.85% flotation cost to sell it.(3) The company has 3.8 million shares of common stock outstanding, a price per share = P0 =$20, dividend per share = D0 = $1, and earnings per share = EPS0 = $5. The return on equity (ROE) is expected to be 10%.(4) The stock has…
Binomial Tree Farm’s financing includes $5.70 million of bank loans and $6.70 million book (face) value of 10-year bonds, which are selling at 80% of par value. Its common equity is shown in Binomial’s Annual Report at $7.37. It has 570,000 shares of common stock outstanding which trade on the Wichita Stock Exchange at $21 per share. What debt ratio should Binomial use to calculate its WACC? (Round your answer to 2 decimal places.)
Chunky Cheese Pizza has $61.9 million in bonds payable. The bond indenture states that the debt to equity ratio cannot exceed 3.22. Chunky’s total assets are $201.9 million, and its liabilities other than the bonds payable are $91.9 million. The company is considering some additional financing through leasing. 2. Calculate the debt to equity ratio. (Enter your answers in millions. (i.e., $5,500,000 should be entered as 5.5). Round ratio answer to 2 decimal place.) Debt to Equity Ratio = million million

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