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 10% interest on the bank debt and 8% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $88 per share. The expected return on Wishing Wells common stock is 21%. (Table figures in $ millions.)
Cash and marketable securities | $ | 160 | Bank loan | $ | 300 | ||
Accounts receivable | 320 | Accounts payable | 180 | ||||
Inventory | 50 | Current liabilities | $ | 480 | |||
Current assets | $ | 530 | |||||
Real estate | 2,550 | Long-term debt | 2,450 | ||||
Other assets | 150 | Equity | 300 | ||||
Total | $ | 3,230 | Total | $ | 3,230 | ||
Calculate Wishing Wells WACC. Assume that the book and market values of Wishing Wells 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.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started