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 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 Wells common stock is 18%. (Table figures in $ millions.)
Cash and marketable securities | $ | 130 | Bank loan | $ | 270 | ||
Accounts receivable | 290 | Accounts payable | 170 | ||||
Inventory | 50 | Current liabilities | $ | 440 | |||
Current assets | $ | 470 | |||||
Real estate | 2,400 | Long-term debt | 2,150 | ||||
Other assets | 120 | Equity | 400 | ||||
Total | $ | 2,990 | Total | $ | 2,990 | ||
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.)
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