6. WACC (S18-1) Table 18.3 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 10% interest on the bank debt and

⟩ TABLE 18.3 Book balance sheet for Wishing Well Inc. (figures in $ millions).

Cash and marketable securities 100 Bank loan 280 Accounts receivable 200 Accounts payable 120 Inventory 50 Current liabilities 400 Current assets 350 Real estate 2,100 Long-term debt 1,800 Other assets 150 Equity 400 Total 2,600 Total 2,600 546 Part Five Payout Policy and Capital Structure 9% 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 18%.

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%.