Reference no: EM133141739
Question - 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 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 Well's 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
Required - 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%.