(9–17)

WACC Estimation The table below gives the balance sheet for Travellers Inn Inc. (TII), a company that was formed by merging a number of regional motel chains.

Travellers Inn: December 31, 2009 (Millions of Dollars)

Cash $ 10 Accounts payable $ 10 Accounts receivable 20 Accruals 10 Inventories 20 Short-term debt 5 Current assets $ 50 Current liabilities $ 25 Net fixed assets 50 Long-term debt 30 Preferred stock 5 Common equity Common stock $ 10 Retained earnings 30 Total common equity $ 40 Total assets $100 Total liabilities and equity $100 The following facts also apply to TII.

(1) Short-term debt consists of bank loans that currently cost 10%, with interest payable quarterly. These loans are used to finance receivables and inventories on a seasonal basis, so bank loans are zero in the off-season.