Question
The table below shows a book balance sheet for the Wishing Well Motel chain. The companys long-term debt is secured by its real estate assets,
The table below shows a book balance sheet for the Wishing Well Motel chain. The companys 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 14% interest on the bank debt and 13% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $86 per share. The expected return on Wishing Wells common stock is 19%. (Table figures in $ millions.)
Cash and marketable securities | $ 140 | Bank loan | $ 280 |
---|---|---|---|
Accounts receivable | 300 | Accounts payable | 170 |
Inventory | 50 | Current liabilities | $ 450 |
Current assets | $ 490 | ||
Real estate | 2,450 | Long-term debt | 2,100 |
Other assets | 110 | Equity | 500 |
Total | $ 3,050 | Total | $ 3,050 |
Calculate Wishing Wells WACC. Assume that the book and market values of Wishing Wells 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.
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 14% interest on the bank debt and 13% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $86 per share. The expected return on Wishing Well's common stock is 19%. (Table figures in $ millions.) 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 placeStep by Step Solution
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