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 percent rounded to 1 decimal place.)
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 percent rounded to 1 decimal place.)
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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The table below shows a book
| 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 percent rounded to 1 decimal place.)
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