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Calculate Wishing Well WACC

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    Assignment ID: FG133141739

    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%.

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