PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 19, Problem 6PS
WACC Table 19.3 shows a book
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%.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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
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 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…
Chapter 19 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 19.A - The U.S. government has settled a dispute with...Ch. 19.A - You are considering a five-year lease of office...Ch. 19 - WACC True or false? Use of the WACC formula...Ch. 19 - WACC The WACC formula seems to imply that debt is...Ch. 19 - Prob. 3PSCh. 19 - Prob. 4PSCh. 19 - WACC Whispering Pines Inc. is all-equity-financed....Ch. 19 - WACC Table 19.3 shows a book balance sheet for the...Ch. 19 - WACC Table 19.4 shows a simplified balance sheet...Ch. 19 - Prob. 8PS
Ch. 19 - WACC Nevada Hydro is 40% debt-financed and has a...Ch. 19 - Flow-to-equity valuation What is meant by the...Ch. 19 - APV True or false? The APV method a. Starts with a...Ch. 19 - APV A project costs 1 million and has a base-case...Ch. 19 - APV Consider a project lasting one year only. The...Ch. 19 - APV Digital Organics (DO) has the opportunity to...Ch. 19 - Prob. 17PSCh. 19 - Prob. 18PSCh. 19 - Prob. 19PSCh. 19 - Prob. 20PSCh. 19 - Prob. 22PSCh. 19 - Company valuation Chiara Companys management has...Ch. 19 - Prob. 26PSCh. 19 - Prob. 27PS
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 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?arrow_forwardZumbahlen Inc. has the following balance sheet. How much total operating capital does the firm have? Cash $ 25.00 Accounts payable $ 45.00 Short-term investments 35.00 Accruals 20.00 Accounts receivable 20.00 Notes payable 45.00 Inventory 70.00 Current liabilities $110.00 Current assets $150.00 Long-term debt 70.00 Gross fixed assets $140.00 Common stock 30.00 Accumulated deprec. 40.00 Retained earnings 40.00 Net fixed assets $100.00 Total common equity $ 70.00 Total assets $250.00 Total liab. & equity $250.00 Anwsers include: a. $185.00 b. $230.00 c. $250.00 d.$85.00 e. $220.00arrow_forwardUse the following scenario to solve A-C. H2X Incorporated has accounts payable of $400,000 (a typical amount for the company, non-interest bearing), a bank loan of $700,000 at 9% interest rate, a bank loan of $1,000,000 at 6.5% interest rate, and equity of $2,800,000. Its income tax rate is 32%. Management estimates the company’s cost of equity is 14%. A. What is the company’s weighted average cost of capital on non-interest-bearing debt, interest bearing debt, and equity (or total invest capital)? a. 11% b. 10% c. 9% d. 12% B. Company managers are considering selling more stock to raise $500,000 of new equity to purchase $500,000 of new manufacturing equipment. What would the new weighted average cost of capital be if this plan were implemented? a. 10% b. 12% c. 9% d. 11% C. Company managers are projecting that the new manufacturing equipment from question 15 will produce a return on assets of 11%. Should the company proceed with this plan? a. No, because…arrow_forward
- Xitin Inc. has the following balance sheet. How much total operating capital does the firm have? Cash $ 63.00 Accounts payable $ 515.00 Short-term investments 117.00 Accruals 281.00 Accounts receivable 246.00 Notes payable 122.00 Inventory 392.00 Current liabilities $918.00 Current assets $818.00 Long-term debt 246.00 Gross fixed assets $647.00 Common stock 56.00 Accumulated depreciation 77.00 Retained earnings Net fixed assets Total assets $475 O $470 $552 $665 O $670 168.00 $570.00 Total common equity $224.00 $1,388.00 Total liab. & equity $1,388.00arrow_forwardData for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, the number of shares is shown in thousands too. Barry Computer Company: Balance Sheet as of December 31, 2021 (in thousands) Cash $ 95,400 Accounts payable $ 209,880 Receivables 744,120 Other current liabilities 152,640 Inventories 496,080 Notes payable to bank 152,640 Total current assets $ 1,335,600 Total current liabilities $ 515,160 Long-term debt 496,080 Net fixed assets 572,400 Common equity (89,676 shares) 896,760 Total assets $ 1,908,000 Total liabilities and equity $ 1,908,000 Barry Computer Company:Income Statement for Year Ended December 31, 2021 (in thousands) Sales $ 2,650,000 Cost of goods sold Materials $1,113,000 Labor 795,000 Heat, light, and power 132,500…arrow_forwardData for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, the number of shares is shown in thousands too. Barry Computer Company: Balance Sheet as of December 31, 2021 (in thousands) Accounts payable Other current liabilities $ 144,050 475,365 417,745 $1,037,160 Notes payable to bank Total current liabilities Cash Receivables Inventories Total current assets Net fixed assets Total assets Sales Cost of goods sold Materials Barry Computer Company: Income Statement for Year Ended December 31, 2021 (in thousands) $2,150,000 Labor Heat, light, and power Indirect labor Gross profit Selling expenses General and administrative expenses 403,340 $1,440,500 Depreciation Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Federal and state income taxes (25%) Net Income Earnings per share Price per share on December 31, 2021 Total assets…arrow_forward
- Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, the number of shares is shown in thousands too. Barry Computer Company: Balance Sheet as of December 31, 2021 (in thousands) Accounts payable Other current liabilities $ 144,050 475,365 417,745 $1,037,160 Notes payable to bank Total current liabilities Long-term debt Common equity (72,025 shares) Total liabilities and equity Cash Receivables Inventories Total current assets Net fixed assets Total assets Barry Computer Company: Income Statement for Year Ended December 31, 2021 (in thousands) Sales $2,150,000 Cost of goods sold Materials Labor Heat, light, and power Indirect labor Gross profit Selling expenses General and administrative expenses 403,340 $1,440,500 Depreciation Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Federal and state income taxes (25%) Net…arrow_forwardes Fondren Machine Tools has total assets of $3,420,000 and current assets of $803,000. It turns over its fixed assets 1.4 times per year. Its return on sales is 5.4 percent. It has $1,630,000 of debt. What is its return on stockholders' equity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Return on stockholders' equity %arrow_forwardmework Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, the number of shares is shown in thousands too. Barry Computer Company: Balance Sheet as of December 31, 2021 (in thousands) Cash $ 53,300 Accounts payable $ 117,260 Receivables Inventories 405,080 266,500 Other current liabilities Notes payable to bank 85,280 85,280 Total current assets $ 724,880 Total current liabilities $ 287,820 Long-term debt Net fixed assets Total assets 341,120 $1,066,000 Common equity (47,970 shares) 298,480 479,700 Total liabilities and equity $1,066,000 Barry Computer Company: Income Statement for Year Ended December 31, 2021 (in thousands) Sales Cost of goods sold Materials Labor Heat, light, and power $861,000 553,500 123,000 205,000 $2,050,000 Indirect labor Gross profit 1,742,500 Selling expenses General and administrative expenses $ 307,500 102,500 20,500 Depreciation…arrow_forward
- Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, number of shares are shown in thousands too. Barry Computer Company: Balance Sheet as of December 31, 2018 (In Thousands) Cash $86,400 Accounts payable $259,200 Receivables 501,120 Other current liabilities 241,920 Inventories 397,440 Notes payable to bank 103,680 Total current assets $984,960 Total current liabilities $604,800 Long-term debt $362,880 Net fixed assets 743,040 Common equity (76,032 shares) 760,320 Total assets $1,728,000 Total liabilities and equity $1,728,000 Barry Computer Company:Income Statement for Year Ended December 31, 2018 (In Thousands) Sales $2,700,000 Cost of goods sold Materials $1,107,000 Labor 594,000 Heat, light, and power 189,000 Indirect labor 270,000…arrow_forwardBig Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,300 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,300 worth of stock. Ignore taxes. Assets Liabilities and Equity Cash $ 8,000 Debt $ 11,500 Fixed assets 29,500 Equity 26,000 a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $32,300 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $32,300 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $32,300 a year,…arrow_forwardn Tina Black's Fabrics is currently an all equity firm that has 15,000 shares of stock outstanding at a market price of $12.50 a share. Company management has decided to issue $60,000 worth of debt and use the funds to repurchase shares of the outstanding stock at the market price. The interest rate on the debt will be 7%. Ignoring taxes, what is the earnings per share (EPS) at the break-even level of earnings before interest and taxes (EBIT)? O A. O B. O D. $1.143 O C. $1.500 SOE. $1.125 $0.875 $0.667 27/arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY