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 15% interest on the bank debt and 13% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $90 per share. The expected return on Wishing Well's common stock is 19%. (Table figures in $ millions.) Cash and marketable securities Accounts receivable Inventory Current assets Real estate Other assets Total Weighted average cost of capital $90 250 50 $ 390 2,200 100 $2,690 % Bank loan Accounts payable i Current liabilities. Long-term debt Equity Total $ 350 150 $ 500 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%. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place. 1,790 400 $ 2,690
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 15% interest on the bank debt and 13% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $90 per share. The expected return on Wishing Well's common stock is 19%. (Table figures in $ millions.) Cash and marketable securities Accounts receivable Inventory Current assets Real estate Other assets Total Weighted average cost of capital $90 250 50 $ 390 2,200 100 $2,690 % Bank loan Accounts payable i Current liabilities. Long-term debt Equity Total $ 350 150 $ 500 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%. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place. 1,790 400 $ 2,690
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 15% interest on the bank debt and 13%
interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $90 per share. The expected return
on Wishing Well's common stock is 19%. (Table figures in $ millions.)
Cash and marketable securities
Accounts receivable
Inventory
Current assets
Real estate
Other assets
Total
$
Weighted-average cost of capital
$ 90
250
50
$ 390
%
2,200
100
2,690
Bank loan
Accounts payable
Current liabilities
Long-term debt
Equity
Total
$ 350
150
$ 500
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%.
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.
1,790
400
$ 2,690
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