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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 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
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
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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 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.)

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